Banking industry draws healthy ratings in 2005

Filed under: Banking & Finance |

The nation’s banking industry is in particularly good health these days, according to an independent ratings firm.

Bauer Financial, known for its star rating system that assesses banks based on performance, says financial institutions enjoyed one of their best years in 2005.

According to the star rating system, nearly 80 percent of the American banks earned Bauer Financial’s recommended rating of either five stars or four stars in 2005.

Add to that, Bauer representatives boast, the fact that the Federal Deposit Corp. has not closed a bank in nearly two years.

Although banks and ratings firms are beating their drums about banking health, a potential sour note for the industry came recently when the National Credit Union Administration closed five credit unions in 2005.

Bauer representatives said the closures have little significance and pointed to credit unions’ star ratings performance last year.

Representatives said that nearly 76 percent of the nation’s federally insured credit unions earned four or five stars in 2005.

Rewards programs growing

Heated competition among banks is leading to additional consumer incentives, including rewards for performing mundane banking tasks.

Rewards are given for everyday tasks such as writing checks, paying bills online and using debit cards.

The Cleveland-based National City Bank has announced that it will offer points for every transaction a customer makes, from using ATMs to opening new accounts. The points can be redeemed for rewards ranging from a Starbucks latte for 2,000 points to a four-day Caribbean cruise for 420,000 points.

Chase, Bank of America and Citigroup Inc., the nation’s largest financial institution, have launched similar consumer programs during the last year.

Businesses stay innovative

Seventy-five percent of small business owners say customer focus and quality improvement are their top priorities, according to a national survey conducted by Wells Fargo and Gallup.

The study also found that while the small business competitive landscape becomes increasingly crowded, small business owners adapt to economic fluctuations and market demands by focusing on innovation.

Nearly 71 percent of respondents said they had spent significant amounts of money on technological upgrades during recent months, and nearly as many said they planned to spend more money on computerized bookkeeping and updated computer systems.

About 61 percent said they plan to focus on different ways of marketing and selling products.

Since the third quarter of 2003, the Wells Fargo and Gallup Small Business Index has surveyed small business owners on a quarterly basis and asked them about their perceptions of current conditions and future expectations, and about their financial situations, revenue, cash flow, capital spending, jobs and credit availability.

Results of the most recent survey were based on telephone interviews conducted March 1-15 with 603 small business owners.

Wells Fargo representatives said that since its inception, the index scores have ranged from a low of 93 in December 2003 to a high of 110 in March 2005.

The index for the first quarter of 2006 stands at 109.

J.P. Morgan Chase settles

Last week, J.P. Morgan Chase became the first company to reach a settlement in a class-action lawsuit alleging that a number of firms manipulated stock sold during initial public offerings.

The suit alleges that 55 Wall Street investment firms defrauded investors by artificially inflating the value of hundreds of IPOs during the late 1990s.

Under the settlement, J.P. Morgan Chase will pay $425 million to resolve the litigation.

Bank officials said the payment would cause no “material” damages and that the firm had earmarked money for a legal reserve to cover settlement costs.

The aggressive action to settle the suit marks a different approach than J.P. Morgan Chase took last year when it settled with WorldCom shareholders at the end of bitter arguments, a strategy that cost J.P. Morgan Chase about $2 billion.

IRS seeking advisory board

The Internal Revenue Service is requesting membership nominations for the Information Reporting Program Advisory Committee.

The committee provides recommendations to IRS leadership about a range of information reporting and administration issues via a report to the IRS commissioner each fall during a public meeting.

Members with diverse backgrounds are chosen for the committee in order to effectively advise executives about a wide range of topics.

Members typically include representatives of the public, tax professional community, small and large businesses, colleges and universities, state tax administrations, banks, and insurance and payroll communities.

IRPAC is comprised of up to 23 members who are appointed to three-year terms. Each year about one-third of the membership terms expire.

Nominations are being accepted for appointments that begin January. Those interested may nominate themselves or someone else for membership.

The deadline for submitting applications is July 14. Send requests for nomination forms to public_liason@irs.gov.

Rob Larimer covers banking and finance for the Colorado Springs Business Journal.