Why using your credit card can be a good strategy

MANILA, Philippines – While most financial experts frown upon the excessive use of credit cards, Chartered Financial Analyst Gavin Lee said there is a way to maximize it without going into debt and even growing your money.

Lee advised putting your salary in a short-term investment instrument like fixed income investments, money market funds, or time deposits and use your credit card in your purchases.

While waiting for the credit card bill, do not touch the deposited funds and allow it to mature in time for the cut-off date.

“Instead of using cash to purchase your gifts this Christmas or any point in the year, why not put your salary on a time deposit or short term money market investment, don’t use it, and use your credit card for your purchases whenever you can,” Lee told ANC’s “On The Money.”

Lee said credit card users should take advantage of the perks such as gift certificates and freebies, adding that the holiday season is the best time for this as “credit card companies try to outdo each other.”

He noted that purchases via credit card shouldn’t go beyond the initial cash funds.

“When your bill is due for payment, make sure that your short term placement is 30 days, 40 days, so when it becomes due for payment, your investment will mature at the same time, so that forces you not to spend the cash while you are waiting for your credit card bill to come,” he said.

He said the full amount should be paid when the bill comes.

Lee said that while timing is key to this strategy, it wouldn’t work without discipline.

“If you can build the discipline to track your investment maturity and your payment dates, it’s going to build a foundation of discipline in many other aspects,” he said.

“If you don’t have the discipline to pay in full, or if you are an impulsive spender, do not do this,” he added.

source: www.abs-cbnnews.com

Bank of America to Pay $500M to Settle Investor Lawsuit

NEW YORK -- As soon as Bank of America puts one mortgage-related lawsuit behind it, another always seems to rear its head.

The bank announced Wednesday that it would pay $500 million to settle a class-action lawsuit led by pension funds and other investors who say they were misled about $350 billion worth of mortgage-backed investments they bought from Countrywide, a mortgage lender Bank of America Corp. (BAC) bought in 2008. The bank portrayed the settlement as good news because it resolved the bulk of securities claims related to residential mortgage-backed securities.

But financial analysts, in a conference call to discuss the bank's first-quarter results, peppered bank executives with questions about another pending settlement. Bank of America is still waiting for court approval for a similar settlement it made with Bank of New York Mellon Corp. (BNY) almost two years ago. If it doesn't get the go-ahead, Bank of America could have to spend more to resolve the claims.

Bank of America's stock slumped nearly 5 percent to $11.70. While its earnings were just shy of what analysts expected, it was the bank's latest liability from mortgage lawsuits that "seems to be the big question for investors," banking analyst Meredith Whitney said on the conference call.

Chief Financial Officer Bruce Thompson told analysts that the bank felt "very good" about settling the pension funds' lawsuit. But he acknowledged the uncertainty of potential lawsuits and declined to predict how much the bank might have to spend on litigation in the future.

"I don't think anyone is going to ever, at this point, declare complete victory," Thompson said, though he added that the bank was moving through "this pipeline of items" in "a pretty meaningful way."

 Bank of America's current troubles are the latest fallout from its decision to buy Countrywide, which was known for making exotic mortgages that later went bad as borrowers defaulted. The purchase catapulted the bank into a spot at the top of the nation's mortgage scene, but it's been an albatross ever since, bringing lawsuits, investigations and quarterly losses. Hard-to-predict legal expenses have been a bane to Bank of America and throughout the banking industry.

It was just last quarter that two mortgage-related settlements overshadowed the bank's results. In early January, the bank took a charge of $2.7 billion to settle a dispute with Fannie Mae, which forced Bank of America to buy back mortgages it had sold to the agency before the crisis. It also took a $1.1 billion charge to settle government accusations that it and other banks had wrongfully foreclosed on some homeowners. The charges sent fourth-quarter earnings down sharply.

Brian Moynihan has been wading through issues dating back to the financial crisis ever since he became CEO in 2010, and would very much like to put them behind him. Asked on the conference call about a report that he was pushing for revenue growth, Moynihan replied that it wasn't a new strategy, just a bigger focus as "legacy" issues get resolved.

"As the other issues go away," Moynihan said, "this is what the team has to be focused on."

More on the bank's results:

• The new settlement: Bank of America is paying $500 million to settle a lawsuit brought by the Maine state retirement system and other investors. They bought mortgages that Countrywide had made and bundled together into securities. The investors say they were misled about the quality of the loans. The settlement still needs court approval.
• The pending settlement: Bank of America agreed in 2011 to pay $8.5 billion to settle claims brought by Bank of New York Mellon, which made similar accusations about mortgage-backed investments owned by institutional investors for which it acted as trustee. That settlement also still needs court approval, and if the judge doesn't accept it, Bank of America could be exposed to more potential claims and litigation expenses.
• What happened this quarter: Results from the different business units were mixed. "We feel like we made a lot of progress this quarter," Thompson said on a call with reporters, "and there's a lot more to do."

Charge-offs, or loans the bank doesn't expect to collect on, were down, and the bank set aside less money for loans that might go bad. The unit that handles troubled mortgages continued to shrink. Revenue and profits were up in wealth management as clients shifted more assets to Bank of America. Commercial loans were up.

The investment bank advised more companies on deals and underwrote more bond offerings, but it had to set aside more money for potential loan losses. Revenue from trading bonds and commodities slipped. Consumer loans also slipped.

• The mortgage market: The bank funded $25 billion in home loans, up 56 percent from a year ago. Bank of America has been changing the way it thinks about mortgages. It's been adding workers to drum up new business, but instead of cranking out as many mortgages as possible -- a common strategy before the financial crisis -- now it's focused on making mortgage loans to people who are already customers. It has stopped buying mortgages made by other lenders.

The overall mortgage unit, however, continued to lose money. The bank sold some of its rights to service mortgages, which crimped revenue, and the profit margins for making mortgages are lower across the industry. Legal expenses also weighed it down.

• Cost cutting: Bank of America has been focused on slashing expenses. It trimmed nearly 16,000 jobs over the year, or nearly 6 percent of its workforce, reducing its headcount to 263,000.

Bank of America has closed 260 branches, or 5 percent of its total, leaving it with roughly 5,400 locations. Moynihan said the bank is responding to the preferences of its customers, many of whom are comfortable banking via cell phone and don't need the branch as often.

• By the numbers: The bank reported earnings after paying preferred dividends of $2.3 billion in the first quarter, soaring from the $328 million it earned a year ago. However, the 2012 results were also obscured by an accounting rule that forced the bank to record a charge because the value of its debt had risen.

Per-share earnings amounted to 20 cents. That missed the expectations of analysts polled by FactSet, who had expected 22 cents a share.

Revenue was $23.9 billion after stripping out an accounting charge. That was down 8 percent from last year, but it beat analysts' expectations of $23.3 billion.

source: dailyfinance.com