Business news - Earnings, Finance & Trading

Us regulators warn banks on home equity loan defaults


U.S. regulators on Tuesday urged banks to work with clients to avoid defaults on hundreds of billions of dollars of home equity lines of credit taken out during the housing bubble that will come due in the next several years. The regulators also pledged to thoroughly check banks' programs to control the risk arising from the lines of credit, or HELOCs."When borrowers experience financial difficulties, financial institutions and borrowers generally find it beneficial to work together to avoid unnecessary defaults," five regulators said in a joint statement.

When HELOCs go bad, banks can lose an eye-popping 90 cents on the dollar, because the line of credit is usually a second mortgage. If the bank forecloses, most of the proceeds of the sale pay off the main mortgage, leaving little for the home equity lender. More than $221 billion of these loans at the largest banks will reach their 10-year anniversary over the next four years - or 40 percent of the HELOCs now outstanding - at which point borrowers usually must start paying down the principal loan as well as accrued interest.

The number of borrowers missing payments around the 10-year point can double in their eleventh year, data from consumer credit agency Equifax shows.

The agencies laid out how banks should oversee their HELOC portfolios nearing the benchmark, how to deal with clients unable to pay and how to report financials. The agencies are the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp, the National Credit Union Administration and the Conference of State Bank Supervisors. If economic growth picks up, and home prices rise, borrowers may be able to refinance their main mortgage and their HELOC as a single new fixed-rate loan. But the OCC has been warning banks about the risk of these products since the spring of 2012, pressing them to minimize risk.

Vw braces for tough business, shares fall


BERLIN Shares in Europe's biggest carmaker, Volkswagen, dropped on Tuesday after the German company said that business conditions had become tougher amid declining auto markets. The business environment has become "significantly more difficult and tougher", the company said in a statement, citing Chief Executive Martin Winterkorn addressing a staff gathering at the group's headquarters in Wolfsburg, Germany. VW has been saying for months that the carmaker is bracing for "challenging" conditions in the remainder of 2012 as core European markets extend their slump. The region's car sales fell 8.9 percent in August for an 11th straight month with Germany, which had long resisted the collapse, shrinking 4.7 percent. German automakers have so far been immune to the sales slump hollowing out profits at many Western mass car manufacturers. VW has outperformed its home region this year, keeping eight-month group sales flat thanks to a 5.2 percent increase at luxury division Audi, VW's main profit driver.

Conversely, VW's southern European peers Peugeot Citroen, Fiat and Renault all suffered double-digit declines, reflecting their excessive exposure to the region's austerity-hit markets. Winterkorn's remarks come less than a week after Daimler warned that operating profit at its flagship Mercedes luxury-car division would fall short of planned targets this year, citing the deepening European slump and increasing competition in China.

The day before, VW's newly-acquired sports-car division Porsche said it would build fewer cars next year, trim spending and cut costs to offset weaker-than expected auto sales."We are gearing up for a challenging environment," Daimler Chief Executive Dieter Zetsche said on September 20.

VW works council chief Bernd Osterloh said in a separate statement released on Tuesday that Germany's largest automotive group will keep growing but not as dynamically as in the past. The manufacturer has a goal of boosting global deliveries to at least 10 million vehicles by 2018 when VW wants to replace Toyota Motor Corp as the world's biggest carmaker - a target reaffirmed on Tuesday by Winterkorn. Preferred shares of Europe's biggest carmaker extended losses and were down 3 percent at 1327 GMT, trading at 150.25 euros.