Banks Hike Fees, Cut Costs to Boost Profits

By David Henry

United States - Jack up checking fees for bank customers who don't use direct deposit regularly. Replace tellers with self-service, touch-screen kiosks. Install new chairs and conference rooms to court well-to-do customers.

U.S. bank executives are handing down such orders to replace profits lost to recent regulatory reforms and low interest rates.

They hope these tactics will be more successful than Bank of America Corp's plan last fall to charge a $5 monthly fee for debit cards. The bank had to retreat amid howls of protest.

Having mostly stopped the losses from the financial crisis, banks are focused on lifting profits from levels below their own historic averages and those of many other industries.

Wells Fargo & Co, for example, has new account requirements that push customers to do more financial business with the company. Bank of America is testing new prices for basic services in three states.  JPMorgan Chase & Co is installing digital tablets and advanced ATMs to reduce the need for tellers and nearly one billion pieces of paper a year.

These three banks hold one-third of U.S. consumer deposits, and their price hikes, cost cuts and marketing to the rich are likely to influence the way Americans bank for years to come.

Increasingly, customers entering branches will be steered toward machines, much like airport ticket counters. More meetings with loan officers will take place by video conference. And nearly everyone, experts say, will need to be wary of new fees and pricing schemes.

Some customers are upset. Laurie Wittges of San Jose, California, said she is struggling to pay higher monthly charges from Wells Fargo. Unemployed, she can't maintain the balance of about $2,500 that the bank now requires to waive her fees.

"There are a bunch of people like me who can't afford this," said Wittges, 50. She lost a job as an executive assistant when the company where she worked closed last year.

CHECKING IS NOT FREE

As happens every decade or so, banks are intensifying efforts to increase pricing power, attract high net-worth customers and apply money-saving technology. While banks no longer lose money as they did in 2009, their stocks remain under pressure and executives are eager to raise profits.

Bank profits are simply too thin now to attract investors, said industry consultant Bert Ely. Return on equity, a key measure of profitability, in 2011 was 7.86 percent, which is below the 28-year average of nearly 10 percent and perhaps two-thirds as much as banks need to compete with other industries for capital, Ely said.
The outlook for the next few years is discouraging. One-time accounting adjustments boosted banks' 2011 results, and will need to be replaced for banks to increase earnings in 2012.

Regulators are on course to tighten limits on how much banks borrow to leverage up profits. And while bank stocks have rallied in the past six months, they are not hitting new peaks. The KBW Bank Index of stocks is no higher now than in August 2009 even though the Standard & Poor's 500 stock index is up more than 30 percent.

The Dodd-Frank Act, the law designed to address causes of the financial crisis, has curbed banks to the extent that there are fewer customers who bring enough revenue to cover the cost of serving them. Banks are barred from charging as much in overdraft fees as before, and from collecting from merchants all the money they used to get for debit-card transactions. Revenue from lending out customer deposits is down because of lower interest rates and loan demand.

Some executives regret marketing free checking accounts in the past. "As an industry, we have communicated with a generation of customers that this is all free, and there are costs," Wells Fargo CEO John Stumpf lamented at an investment conference in December.

The average cost to provide a checking account through a bank branch, according to Wells Fargo and JPMorgan, is roughly $300 a year, including spending to open branches, build computer systems, create websites and operate call centers. On that basis, about half of all U.S. households are unprofitable to the banks, according to JPMorgan.

Even when customers leave thousands of dollars on deposit in accounts, banks often do not make enough money on the funds to cover the costs. For example, an account with $4,000 that JPMorgan could have invested last year would have generated only about $140 in interest revenue for the bank. That's based on the 3.51 percent average rate the bank received on interest-earning assets and does not factor in its cost to make loans.

To be sure, banks are not going to dump half of their accounts. Serving additional customers does not cost much once banks have set up operations. Incremental costs for things like checks, debit cards and additional deposit insurance are so slight that they are covered by about 90 percent of accounts, according to JPMorgan. The banks also know that once interest rates rise and loan demand returns they will make money on the marginal accounts.

NEW PRICE PLANS

But banks are making a shift. Across all banks, 45 percent of non-interest checking accounts are now free, down from 65 percent in 2010, according to a Bankrate.com study released in September.

Banks are searching for an extra $5 here and $10 there. Bank of America, for example, since last year has been testing a menu of account choices in Massachusetts, Georgia and Arizona. The accounts, for new consumers, cost $6 to $25 per month. Most of the accounts provide ways to escape the fees, but customers must keep a minimum balance or use a credit card.

Wells Fargo eliminated free checking for new customers in 2010 and is gradually ending it for existing customers. In early March, the bank said it will charge current customers in six East Coast states $7 per month, unless they keep a $1,500 minimum daily balance or make direct deposits of $500 each month. The bank has already made the change in 24 western states.

Wells Fargo CEO Stumpf also aims to convince customers to do more business with the bank, like take out loans and use investment services, to pay their way. "We can give them package pricing," Stumpf told investors. "It is a better deal for them."

To cut costs, Bank of America is closing branches. Wells Fargo said it may shrink branches and reduce the number of tellers.

JPMorgan is installing new technology in branches to cut expenses and, executives hope, attract profitable
customers.

"We'll have more room for self-service, more room for rich people and business customers," Todd Maclin, JPMorgan's consumer banking chief, said at an investor conference last month.

The bank plans to coach customers in online and mobile banking, he said. Advanced ATMs will cash checks and dispense currency in multiple denominations, reducing the need for human tellers.

In six branches where JPMorgan is testing self-service kiosks, check cashing with tellers declined 40 percent. "Paperless tellers," people equipped with computer tablet touch screens, saved time and reduced errors in five branches where they are being tested, the bank said.

JPMorgan expects to use video conferencing to allow foreign language speakers and investment and loan experts to talk with customers in multiple locations. Some 58 branches now have machines that issue debit cards on the spot to save postage and time. The machines will soon spit out credit cards, too.

Still, new equipment and mobile banking apps can only do so much. About 90 percent of retail transactions with the bank are already automated, Maclin said. While the remaining 10 percent of transactions tend to have especially high costs that can be reduced, the estimated $500 million in annual savings falls short of the $800 million JPMorgan said it is losing to new regulations on consumer accounts and debit cards.

Bank of America CEO Brian Moynihan said in an interview that what is different for banks from past profit squeezes is that there are more ways to provide cost-effective services to customers, such as mobile banking.

That may be, but banks have failed with some technology investments in the past. In the late 1990s, First Union Corp, a North Carolina-based regional bank, flopped with a strategy called "Future Bank" intended to push customers away from tellers to phones, ATMs and computers. Customers grumbled about long waiting lines for tellers and in-branch phones that connected them to distant call centers. First Union lost deposits and had to rehire tellers.

Maclin of JPMorgan Chase vowed his bank will be careful as it pushes ahead. "We're not going to torture people in the process of getting them to go to self-service," he said.

Special U.S. Military Unit Hunts Mexico Border Drug Flights

By Curt Prendergast

United States/Mexico - A highly specialized U.S. military task force is using battlefield technology to help federal police hunt elusive drug traffickers slipping over the Mexico border in hard-to-detect ultralight aircraft, officials said on Thursday.

Joint Task Force North, a cadre of highly specialized Marines, soldiers, sailors and airmen, is using the military's cutting edge radar and optical technologies to help the U.S. Border Patrol nab the drug flights in southern Arizona and New Mexico.

Wily traffickers attach bundles of up to a few hundred pounds of marijuana to the small, lightweight aircraft, which are difficult to spot and often fly in areas not covered by the Federal Aviation Administration, officials said.

"We take great pride in being able to say, 'We own the night,'" task force spokesman Armando Carrasco told a news conference near Douglas, a remote ranching town on the Mexico border in Arizona, where the flights are a headache for law enforcement.

"We can deploy radars to where there's no FAA coverage ... Our purpose is to identify all aircraft crossing the border illegally. If it flies, we can identify it," he added.

U.S. authorities have recorded hundreds of ultralight incursions along the porous, nearly 2,000 mile border with Mexico in recent years. The smugglers often dump the drugs and head back south to Mexico without landing. At least two have crashed.

In January, President Barack Obama signed a law sponsored by former Arizona Representative Gabrielle Giffords levying new penalties on people who use the aircraft to smuggle drugs over the U.S. border.

Operation Nimbus II involves around 500 highly specialized personnel. They will use the military's Sentinel battlefield radar system, and the Avenger Air Defense System, which uses infrared heat-sensing technology to help detect intruders.

The systems are able to track unscheduled incursions both during the day and at night in remote mountain and desert terrain in southern Arizona and western New Mexico, among the areas most frequently probed by the clandestine drug flights.

The partnership is of mutual benefit to both the Border Patrol and the military task force, officials said. "We get additional eyes and they get training," said Steven Passement, a spokesman for Border Patrol's Tucson sector

"It's good training in a real-world environment," said Sergeant Mark Stark, who is trained on the Sentinel system.

The task force, which includes engineers, map makers, radar and intelligence specialists, currently aids the Border Patrol on the northern border with Canada, where it has used battlefield radar systems to target marijuana smugglers.

However, 70 percent of the more than 6,000 missions conducted by the task force since its creation in 1989 have been on the border with Mexico, Carrasco said.

Last year the group, which operates in an area between homeland security and defense known as "the seam," conducted 80 missions in support of federal police, with more than 50 of them on the southern border, he said.

These included using ground-penetrating radar systems to hunt for drug tunnels bored under the border to San Diego from Tijuana, Mexico, and road construction in various cities along the border, Carrasco said.

Both the Obama administration and the government of Mexican President Felipe Calderon have in recent years stepped up cooperation to curb the smuggling of drugs and migrants north over the U.S. border and of cash and guns south to Mexico, where about 50,000 people have been killed in drug violence in the past five years.

Odd Stories: Go-Kart Used to Smuggle Pot in Arizona Desert

Arizona – Police confinscated a cache of pot that was being transported by someone using a go-kart.

Border Patrol agents noticed the go-kart and trailer as it traveled through the desert and chased it down but not after the driver bailed out the the vehicle and escaped to Mexico, eluding the agents.

When they approached the vehicle they found inside the trailer almost 220 lbs of marijuana. The total amount of the vehicle, trailer, and contents, mostly the contents, is estimated to be around $109,000.

About the find agent Spencer Tippets said :It's not something that we see very often. Smuggling organizations are always trying to adjust and change their tactics.”

U.S. Government-Subsidized Meat Killing Native Americans

By Kelly Grens

United States - Native Americans who often ate processed meat in a can, generically known as "spam" and a common food on reservations, one subsidized by the government -- had a two-fold increased risk of developing diabetes over those who ate little or none, according to a U.S. study.
Native Americans are at especially high risk of developing diabetes, with nearly half having the condition by age 55.

Researchers writing in the American Journal of Clinical Nutrition surveyed 2,000 Native Americans from Arizona, Oklahoma and North and South Dakota to look into potential reasons for the high rate.
"A lot of communities in this study are in very rural areas with limited access to grocery stores... and they want to eat foods that have a long shelf life," said Amanda Fretts, the lead author and a researcher at the University of Washington School of Medicine.

None of the survey participants, whose average age was 35, had diabetes at the start of the study when they answered questions about diet and other health and lifestyle factors.

After five years, a follow-up survey found that 243 people had developed diabetes.
Among the 500 people in the original study group who ate the most canned processed meat, 85 developed diabetes. In contrast, among the 500 people who ate the least amount of "spam," just 44 developed the disease.

Though Spam is a brand-name pork product, the lower-case term is also used to describe any kind of processed, canned meat, Fretts said. Canned meat is available freely to many Native Americans on reservations as part of the U.S. Department of Agriculture's food assistance program.

Fretts and her colleagues found that unprocessed meat did not have the same relationship with diabetes, with people equally likely to develop diabetes regardless of how much hamburger or cuts of pork or beef they ate.

"I think what this study indicates is processed meats should be a priority for reduction (in the diet), especially among American Indians where they can go to food assistance programs and they can get discounted spam," said Dariush Mozaffarian, a professor at the Harvard School of Public Health who was not involved in the study.

Mozaffarian and his colleagues two years ago conducted an analysis that found that processed meats were tied to a 19 percent higher diabetes risk, while unprocessed meats were neutral.

"I think the biggest difference between processed and unprocessed meats is sodium," he said, though he added that there is no clear explanation for the link of processed meats and diabetes.

Fretts and her colleagues noted that the people who ate the most processed meats tended also to be heavier, with larger waistlines, raising the possibility that processed meats contribute to obesity, which raises the risk of diabetes.

In an emailed statement to Reuters Health, The American Meat Institute, which represents companies that process meat, said that "processed meats are a safe and nutritious part of a balanced diet."

Fretts said the study could not prove that eating processed meats was to blame for the increased risk of diabetes.
"I think there needs to be more follow-up," she said.

Odd Stories: Man Gets Arrested for Trespassing in a Jail

Flagstaff, Arizona – After being serving his sentence for trespassing, a man was arrested for the crime again without leaving the jail.

Martin Batieni Kombate was arrested the previous week for the crime but when officers arrived to escort him out of the Coconino County Sheriff's Office jail, he refused to leave because he didn't know where his wallet was located. After telling an officer from the Flagstaff Police Department who was sent to talk to him he wouldn't leave until he found his wallet, he was arrested again for trespassing.

Odd Stories: Man Found Eating and Wearing a Cat

Phoenix - A homeless man is in jail after he was found by police skinning and eating a cat.

Russell Christopher Hofstad was discovered after the owners of a warehouse often used for raves called police to report a burglary after they heard loud music playing when they opened the building.  That' when the police discovered Hofstad.  They found him with a painted face and some of the cat's insides and a tail around his neck.

Hofstad said he killed and ate some of the cat's body parts because he was hungry.  He also claimed he planned to make the cat into a decoration.

Hofstad said he lived in the building because he was released from jail on January tenth and had nowhere to live, so he went there because of the raves.

Tucson Orders Closure of Mexican-American School Program as Ethnic Studies Faces Nationwide Threat

I can see this as nothing more than a racist attack against the Latin/Chicano/Mexican people as a whole.  To act like this kind of thing is a bad subject to learn, under the intentionally misleading guise that it causes division amongst people, is disgusting.

In schools across the country history, especially American history, is usually seen through the eyes of white people.  Whether that is the celebration of Christopher Columbus, the lionizing of the Founding Fathers, the slight mention of white supremacists, or the just-barely-enough history of the Civil Rights Era, American schools have taught its students white history as if it was universal fact.

Along comes, however, something like this or the role the LGBT community in the United States and what happens? People, mostly older white people, get upset.  I assure you if they knew they could get away with it, these very same people would, nation-wide, try to get African-American history yanked out of schools as well.

State Cuts to Medicaid Affect Patients, Providers

ATLANTA — Just as Medicaid prepares for a vast expansion under the federal health care overhaul, the 47-year-old entitlement program for the poor is under increasing pressure as deficit-burdened states chip away at benefits and cut payments to doctors.

Nearly every state has proposed or implemented a plan in its current budget to rein in costs, and many are considering additional cuts in the year ahead.

For the tens of millions of poor and disabled who rely on the program — approaching nearly one in five Americans — the cuts translate into longer waits for doctors, restrictions on prescription drugs, a halt to vision and dental care, staff cuts at nursing homes and dwindling access to home health care.

Ruth Wohlforth, 70, is among those feeling the effects.

Her $700 monthly income qualifies her for both Medicare and Medicaid, but she says her benefits have been reduced, she's being forced her to make co-pays for the first time on prescription drugs, and she now has to drive about 30 minutes from her home near the southern tip of New Jersey to see a doctor. Some of her friends have been assigned to doctors in Philadelphia. 

She said she feels lawmakers are not aware of the real-world consequences of their spending cuts.

"I've seen so many people in tears, and they don't know what to do," Wohlforth said. "People that are older than I am, and are in worse shape, they get befuddled by the whole thing. They don't know where to go for help; they just feel they're not being listened to."

States are reshaping the Medicaid landscape even as the need has grown along with joblessness during the recession.

The $427 billion-a-year program, a combination of state and federal funding, also had been targeted for additional cuts at the federal level this year as members of Congress sparred over how to reduce the nation's debt. But funding seems safe for now after a special committee failed last month to reach an agreement on how to cut overall spending.

Already, many changes at the state level have been dramatic and are testing the legal bounds of what Medicaid must provide:

— Arizona, for a time, eliminated life-saving transplants for Medicaid patients, and hospital officials in the state blame at least one death on the halt in coverage. Gov. Jan Brewer restored transplants but is prohibiting thousands of low-income, childless adults from entering the program and has added fees on those who smoke and the obese.

— New Jersey Gov. Chris Christie is pushing a plan under which only the poorest would qualify. A parent of two making more than $103 per week would no longer be eligible for coverage.

— The U.S. Supreme Court will decide whether California has the right to continue cutting payments to physicians and other Medicaid providers to help close the state's ongoing budget deficit.

Cuts to provider fees, as in California, have been the most frequently used tactic by states to save Medicaid costs. A recent survey by the National Association of State Budget Officers found that 33 states wanted to reduce provider rates and another 16 sought to freeze them.

California was granted permission by federal officials to make broad cuts to reimbursement rates to its Medicaid program, known as Medi-Cal, in October. The cuts include a 10 percent reduction to payments for outpatient services for doctors, clinics, optometrists, dental services, medical equipment and pharmacy. They are intended to save the state an estimated $623 million.

A coalition of trade associations representing doctors, pharmacists and chain drug stores has filed a lawsuit seeking to stop the cuts. Doctors who care for Medi-Cal patients say they already have been subjected to multiple pay cuts, and some say they no longer will be able to serve the state's neediest patients.

About 70 percent of Dr. Douglas Tolley's practice in Yuba County is covered by Medi-Cal. The 64-year-old obstetrician, who practices in a largely agricultural region about 40 minutes north of the state capital, said he is the old-school sort of doctor who "was brought up in a time when doctors took care of all comers."

Yet he has seen his income steadily drop over the last 18 years — down one-third from what it was when he started.

"Everybody understands that doctors are basically small business people, and we have to meet our cost plus make a living." Tolley said. "Just meeting our cost doesn't mean staying in business."

Even more state cuts could be on the horizon. In Maine, Gov. Paul LePage recently proposed removing 65,000 residents from the program, citing a state Medicaid shortfall estimated to reach $221 million through mid-2013. The Republican governor says he will not consider tax increases to make up the difference.

State officials, who are required to balance their budgets, argue they have no choice but to cut into Medicaid after four straight years of budget deficits. With state and federal funds combined, Medicaid makes up 22 percent of total state spending, the largest single portion of most state budgets, according to the National Association of State Budget Officers.

Critics say the moves are shortsighted.

Joan Alker, co-executive director of the Center for Children and Families at Georgetown University, said slashing Medicaid will not stop the sick from seeking care, sending them to emergency rooms and ultimately inflating private medical insurance premiums.

"At the end of the day, for the children, the individuals with disabilities, the seniors in nursing homes, their health care needs are not going to go away just because someone cuts the Medicaid program," Alker said.

Jerry Kemmer, a former Democratic state assemblyman in New York, said Medicaid has long been an issue lawmakers did not want to touch. Now, they simply have no choice.

"It's ballooned to the extent that it's just become a budget-buster," he said.

Six million people have joined the Medicaid rolls since the recession began in late 2007. Enrollment nationally topped 50 million for the first time in June 2010, a number that is projected to keep rising, especially as the nation's unemployment rate remains high.

Billions of dollars from the federal stimulus program helped avoid deep Medicaid cuts through the worst of the recession, but the last of that money dried up this year.

In Florida, Medicaid reimbursement rates were reduced this year by 12 percent for most hospitals, although rural and children's hospitals were cut just 3 percent, and rates for nursing homes were cut 6.5 percent.

But the start of the next legislative session in January already has some people worried about additional cuts.

Debra St. Fleur, 25, of Miami, is covered by Medicaid, along with her 1-year-old son. Many of her neighbors in the city's Little Haiti section are on Medicaid, too, and she worries what would happen if services continue to be eroded.

"It's really scary," she said. "If they can't get their medicine, what's going to happen? They're going to die."

The Obama administration is concerned enough about the widespread Medicaid provider cuts that it has introduced a rule that would make it harder for states to slash the rates. The move is designed to ensure that those eligible for Medicaid are not denied access due to a shortage of 

health care resources.

Medicaid reimbursement rates already trail those physicians receive for treating Medicare patients and those with private insurance. A study by the nonpartisan Center for Studying Health System Change found that on, average, Medicaid would reimburse a doctor $39 for 45 minutes for a new patient hospital visit, compared to $63 for Medicare.

Physician groups say that has left more and more doctors declining to see Medicaid clients. Some providers are trying to find other ways to make up for the cuts.

In Columbia, S.C., Julie Ann Avin, executive director of the private, nonprofit Mental Illness Recovery Center Inc., has decided not to fill staff vacancies and also cut back on some rehab services because of Medicaid's new authorization process. The center serves about 650 people annually, close to 60 percent of whom are on Medicaid.

"We accept folks regardless," Avin said. "Everything that we do is not based just on a reimbursement."

Molly Collins Offner, director of policy development for the American Hospital Association, said emergency rooms must accept Medicaid clients, as well as those without insurance.

 "More and more, you are seeing ER's becoming primary care docs," she said.

She said deep cuts rippling through the Medicaid system will only exacerbate that.