Unlocking Financial Success with CD Laddering

A significant concern in recent years is how to invest the fixed income component of your portfolio. Depending on your age, risk acceptance, and investment objectives, most people have 20% to 60% of their portfolio in fixed income investments such as bonds. 

Unfortunately, bonds have been doing terribly over recent years in a rising interest rate environment. For example, the S&P U.S. Aggregate Bond Index is down 4.8% over the past three years; this is painful when investors were getting a mere 3 or 4% yield on bonds during this overall period.   This leaves investors seeking an alternative investment to meet their fixed income objectives.

The best alternative is using CD Ladders.  It is not known where interest rates are going; however, the best bet from most market analysts is interest rates will continue to increase over the short term. 

Using a 2 year CD Ladder is a good method to ride out the short-term interest rate changes using a safe FDIC insured investment while also beating the rate of inflation.

Understanding CD Laddering

CD laddering is a strategy that involves spreading your savings across a series of CDs with varying maturity dates. The idea is to create a staggered or "ladder" structure, which allows you to access a portion of your funds at regular intervals while taking advantage of higher interest rates offered by longer-term CDs. As a the shorter team CDs mature; you will roll them into longer-team (the full-term time horizon for the ladder) CDs. Typically most investors consider a CD Ladder with a two year time frame as short-term time horizon, and a CD Ladder with a five year time frame as long-term.

There are numerous websites (including NerdWallet) which describe how to configure a CD Ladder in detail – plus many videos on YouTube.

Basic Description: How CD Laddering Works

1. Divide Your Savings: Typically you will split your savings into equal parts, but unequal parts may be used based on your investment objectives and views on the interest rate environment. These will be allocated to different CDs, each with a different maturity date.  
2. Choose CD Terms: Select CDs with varying term lengths, such as 3 months, 6 months, 9 months, 1 year, 18 months, 2 years, and so on.  For example, a 2 year CD ladder may include dividing your investments into 5 parts with 6 month, 9 month, 12 month, 18 month, and 2 year maturities.
3. Open the CDs: Purchase the CDs with your allocated funds. As each CD matures, typically you will reinvest it into a longer-term CD set at the full time horizon of the ladder (e.g. two year, five year).

Benefits of CD Laddering

CD laddering offers several advantages that make it an appealing savings strategy:

1. Liquidity: With staggered maturity dates, you have access to your funds at regular intervals. This liquidity can be crucial for unexpected expenses or to take advantage of investment opportunities if you decide not to simply rollover the money to a longer maturity CD.
2. Higher Returns: Longer-term CDs typically offer higher interest rates than shorter-term ones – but this is not currently true where the max yield seems to be at the 12 or 15 month benchmark generally. CD laddering allows you to capture these higher rates across a set time horizon while still being flexible.
3. Risk Mitigation: CDs are generally low-risk investments, making them a secure choice for your savings. Most are FDIC insured – even when they are brokered via Schwab or Fidelity.  A CD Ladder is much less risky than a bond fund or ETF.
4. Consistent Income: With regular CD maturation, you can create a reliable income stream if needed. For those of us who are retired this can be particularly valuable for providing a steady income str.
5. Savings Discipline: CD laddering encourages disciplined savings and investing, as you consistently reinvest or based on your needs access your funds according to your ladder's schedule.

A couple additional thoughts

• Consider setting your CDs for automatic renewal.  Most banks and brokerages allow this.  You can normally also select your re-investment maturity time period (e.g. rolling a 6 month CD upon maturity into a 2 year CD).
• Understand the penalties for early withdrawal.  Usually you will lose all or some of the interest you would have earned on the CD.

Rather than opening accounts at multiple banks in an attempt to get the best yields for different CD maturities and having to keep track of everything; there is a much better alternative.  Both Schwab and Fidelity offer FDIC insured brokered CDs from banks. You can search in their portals for the best yields for each maturity for new brokered CDs and perform all of your purchases in a single website. This makes tracking and following your CD ladder much easier; I also find that I get better yields since you can find the top yield across the U.S. when doing your purchase.

There are also numerous CD Ladder spreadsheets available online for download.  I am using the ExcelGeek's CD Ladder Spreadsheet to structure my 2 year CD Ladder strategy.  This spreadsheet can be downloaded as a zip file from - http://www.mdmproofing.com/iym/files/CD_Ladder.zip

There are also CD Ladder Calculator websites available online including -this one from Excel Bank - https://www.excel.bank/calculator/cd-ladder

 

Europe on the Brink: Bank Failures

Is this the time to start a betting pool on which large European bank fails first or pray for some short-term fix that will delay the inescapable failures?

The horrible truth dawned on Europe’s leaders late last year; the Euro has no future except for the disassembly of the system. Any recent meetings will only stave off the inevitable.

The next leg appears to be failure of multiple banks in Europe. Collectively these institutions need to immediately find €114.7bn of extra capital in order to weather the storm. The banks can no longer depend on the Euro zone governments as a backstop; the major governments are even unable to combine to offer a common bond auction. Individually the recent government bond auctions have been severely under-subscribed; no one wants to purchase European government debt at any type of reasonable price – only at yields effectively implying the entire EU is in default.

Will one of France’s large banks be the first to fail; BNP Paribas, Credit Agricole and Societe Generale. All were downgraded by Moody’s on Friday. Germany’s Commerzbank appears to be teetering on the brink. Do the government coffers in France and Germany still contain enough funding to bail-out these entities with a significant cash infusion, or is the entire Eurozone banking system on the edge of collapse as the banks run out of assets to pledge to keep vital funding lines open.

It appears that the U.K was very wise when they rejected any further involvement with this debacle.

Bond Spreads suggest BoA is going out of business

It is interesting to note the greatly increasing credit default swaps for Bank of America over the past few weeks. When viewed in a traditional context, the acceleration of the increased spreads suggest that BoA will be out of business somewhere in 2012.

The increased spreads for BoA is noted in a recent WSJ article. The article does not take the next step to compare the spread increase to those of other financial institutions that have required re-organization or cash infusion to remain solvent.

"Bank of America credit default swaps have spiked to 4.60 percentage points this morning, up from 4.40 percentage points Monday. The annual cost of protecting a notional $10 million of the bank's senior bonds against default for five years is now $460,000, suggesting banks are under more pressure than ever and banking events overseas are just one negative force weighing down the sector."

The stock price below $6 is not a good sign either, but not as pertinent as the debt spread situation.

Bill introduced to reinstate Glass-Steagull

One of the key points that the recent financial crisis has demonstrated is that there is an need to separate investment and commercial banking. Investment banking is built on risk while commercial banking is built on safety. Allowing the combination of the two starting in the 1980's is the real root cause of our current financial crisis - enabling greedy risk prone practices to run amok in the traditionally prudent mortgage industry.

Glass-Steagull originally separated commercial and investment banking in 1933 after it became obvious that the catastrophic bank failures during the Great Depression were due to the jeopardy created by conflicting purposes.

Finally someone in Congress has come to their senses and introduced a bill to re-introduce the intent of Glass-Steagull. Help support HR.1489

The Future of the Euro

The fire and brimstone clouding the European sky is not the volcanic ash from Iceland but rather the bleak outlook for a unified currency. To put it mildly the Euro is doomed, it is just a just a question of how the entire scenario unfolds.

Currencies only work for a nation when their own central government has control over the money. A country using a currency while ceding control of the exchange mechanism simply makes the nation a victim of all the other entities using the notes. Germany and other northern European nations recently learned this harsh lesson. The Euro worked while all the economies across the continent were rising, but quickly imploded when a recession occurred. The southern European nations with poor financial controls that that have historically defaulted multiple times are now in a position to collectively drag down the entire collection of economies due to the common currency. Prior the Euro these countries would default and their individual currencies would be devalued.

It is true that the more people that use a currency then the stronger the value. Witness the strength of the deutschemark after the inclusion of East Germany. However a country must have sole control over their currency and not yield power to a central authority in order to be successful. I found that the Germans were very supportive of the merger of East and West Germany despite concerns over the poverty in the East at the time. Today, Germans are outright furious that the country is bailing out Greece and other nations. Most of the people on the street recognize what is going to happen next which is why they are lining up at banks to demand Euro notes with X’s in the serial numbers that are associated with Germany and not other countries.

While the entire situation can play out in multiple scenarios; there are two obvious ones. The first is that the Euro will divide into two segments, the stronger northern European nations with one version of the Euro and the southern European nations with a version of the Euro which is next to worthless. This explains why German citizens are lined up demanding “their national Euro notes”. It is likely that outside notes will soon be devalued.

The second possible scenario involves individual countries withdrawing from the Euro exchange mechanism and reinstituting their own national currencies. A good number of barriers and political negotiations will have to be overcome to allow this type of withdrawal. On the other hand people rioting in the streets generally has the tendency to make central union decision making to move with more haste.

Another likely scenario involving individual nations withdrawing from the Euro focuses on the central union giving countries with debt problems the boot and demanding that they withdraw from the Euro. As the size and scope of the debt issues become more apparent there will be a greater howl across the continent for the offending nations to withdraw.

In the long term where will this leave the Euro? It would be best if it was used as a basket of currencies for international trade as it was originally intended – 23% franc, 34% deutschemark, etc. rather than being used as a universal note in retail trade across the entire EU block. The disbanding of the common Euro is the best solution and the obvious path for continent.

Today's Cartoon

Analysis: SEC vs. Goldman

The civil fraud charges filed by the Securities and Exchange Commission Friday accused Goldman Sachs of "defrauding investors by misstating and omitting key facts". These financial charges also mark a new era of government regulatory enforcement of Wall Street. No longer will the SEC simply come to consent decrees with financial firms where they do not admit guilt and in most cases pay a small fine viewed as a cost of doing illegal business.

One immediate question is how do the SEC charges filed against Goldman Sachs change the playing field? Do these charges even mean anything in a broader regulatory context? In my opinion, the actions from the SEC on Friday defines a new playing field by Washington marked with the following game-changing alterations:

a) A broader effort to get the derivatives market properly regulated to minimize the possibility of future meltdowns.
b) The Goldman Sachs charges are expected to be the first of a lengthy string of government actions against multiple firms that contributed to the financial meltdown. The lack of accountability by firms which accepted bailouts is no longer acceptable to main street and their representatives in Washington.
c) A dismantling by regulation of firms that are "too big to fail"; including the scaling back of previous government legislation that allowed the merger of commercial and investment banks.
d) The teeth of the SEC are back in place. For the last twenty years the SEC has been a toothless enforcement entity; forcing state AGs to take a leading prosecution role in financial malfeasance. This is likely to be the start of a change where the federal government will have deep roots in the policing of problems involving large financial firms.

The roll out of these regulatory reforms are expected to take years; however as noted by an AFP news article "We suspect that after Friday, others on Wall Street may have a harder time sleeping."

Another good clip is Ratigan on MSNBC where he compares Goldman Sachs to an automobile manufacturing company that deliberately took critical component from the inside of cars (CDOs) and then sold the cars as being great investments while betting on the side that the cars they created would all blow up spectacularly. An apt analogy - watch it here.

WaMu Execs dragged before Congress today

There will be excitement in Washington today as former WaMu Execs are dragged before Congress kicking and screaming. Now that a Senate panel has had over 18 months to gather information, hopefully some sharp questions will be asked about Washington Mutual's abusive and illegal practices.

Allow me to urge the Congressional panel headed by Senator Carl Levin to refer the entire situation to the Justice Department for criminal prosecution.

'Washington Mutual "was one of the worst," Levin told reporters Monday. "This was a Main Street bank that got taken in by these Wall Street profits that were offered to it."'

Top ex-WaMu executives come before Congress
http://news.yahoo.com/s/ap/20100413/ap_on_bi_ge/us_washington_mutual_investigation

Even a year later - WaMu failure still in the headlines

Washington Mutual was a bank that desperately deserved to fail. Even a year after its demise, WaMu is still making the headlines. One example is is the CNN Money article below...

WaMu: The Forgotten Bank Failure

The biggest-ever bank collapse didn't lead to chaos, but Americans will pay the price for its unsound lending for years to come.

Washington Mutual is long gone, but its lax lending could haunt us for years.

The Seattle-based institution collapsed in the largest-ever U.S. bank failure last September. WaMu ran out of cash after business customers, unnerved by the implosion of Lehman Brothers, withdrew their uninsured deposits.

After the chaos surrounding Lehman's demise, WaMu was put to rest with little fuss. Regulators seized the nation's sixth-biggest bank on a Thursday night — a departure from the customary Friday — and sold it to JPMorgan Chase for $1.9 billion.

The move wiped out WaMu's 56,000 shareholders of record and left bondholders nursing billions of dollars in losses. But the WaMu deal spared the federal deposit insurance fund and thus was, unlike so many federal actions over the past year, an unalloyed positive for taxpayers.

http://finance.yahoo.com/loans/article/107676/wamu-the-forgotten-bank-failure.html?mod=loans-home >

Trillion Dollar Bailout

Come play the game: Trillion Dollar Bailout

"Punish greedy fat cats and save honest peoples! Hand out moneys to homeowners. Put the hurt on dudes in suits! Do it right and save the world!"

Drag the slap symbol to deny a bailout and drag the cash bag to provide assistance to the various characters that pop-up.

Here are some hints - don't give the money to banks & only give to homeowners who are not in foreclosure. Go to the Addicting Games site to play.

The Ascent of Money

Earlier this week, PBS ran a special two hour program "The Ascent of Money". The program is an excellent overview of current financial crisis placed in context of other historical events. The show includes some excellent commentary and interview clips.

It can be watched online at:
http://www.pbs.org/wnet/ascentofmoney/

WaMu CEO given the Boot

Past HingeFire articles have outlined in detail the issues at Washington Mutual and urged banking customers to pull out funds over the FDIC limit. News today shows that Washington Mutual has ousted CEO Kerry Killinger. WM stock is down over 15% in mid-day trading.

It is also interesting that Washington Mutual agreed to further oversight by the Office of Thrift Supervision concerning aspects of its operations. This demonstrates the high level of concern regarding the solvency of the institution from a regulatory perspective.

Are Banks at a bottom?

A recent Motley Fool article asks if it “Is It Time to Buy the Banks?” The KBW banking index is down over 40% from the year before levels. The constant stream of news from the banking sector appears to be negative; more FDIC takeovers, increasing write-downs, and larger banks as take-over targets.

One point of view says the entire banking industry will be in trouble for the next 12 months with increasing failures and negative headline press. The other side of the coin outlined by Motley Fool states that banks offer a compelling value purchase situation and the KBW index may have seen its trough.

Investors can look at yield, P/E, book value, Justified P/BV, or other ratios. Using the math, it appears that banks may be near a historic valuation low and are due for rebound. At minimum, it is time to start investigating stronger individual stocks in this sector for purchase.

Bank Safety Ratings on the Web

Bankrate now offers bank safety ratings for free on the web. See the Safe and Sound page of the Bankrate website - http://www.bankrate.com/brm/safesound/ss_home.asp

You can search using many different criteria to find the banks you are interested in. Bankrate provides the following summary to describe the service.

"Bankrate.com's Safe & Sound® service is a proprietary system designed to provide information on the relative financial strength and stability of U.S. commercial banks, savings institutions and credit unions. The system employs a series of twenty-two tests to measure the capital adequacy, asset quality, profitability, and liquidity (CAEL) of each rated financial institution. Individual performance levels are determined from publicly available regulatory filings and are compared to asset-size peer norms, industry standards and key absolute benchmarks. Combined results form the basis for our Composite CAEL and Star Ratings, which are described below. When possible, the system also produces a report that provides a detailed explanation of our findings, for each rated financial institution."

Earlier we had warned everyone to get their money over the FDIC limit out of Washington Mutual. It is interesting to note that WaMu recieved the lowest possible ratings, for both the Bankrate star rating and CAEL rating. - http://www.bankrate.com/brm/safesound/thrftmm.asp?fedid=1000508551

How to Screen for Strong Banks

Amidst all the carnage in the financial sector, how can you screen for the stronger banks and financial institutions that are likely go come out of the credit crunch as leaders.

The best starting point is creating a screen that searches for potential candidates. The key question is what criteria should be in this screen. Basically you need to hunt for financial institutions that display the following characteristics.

• The earnings are still positive.
• The yield is above 0.5%.
• The bank stocks trades at reasonable volume above a price of $2
• The bank stock price performance is exhibiting strength against both the S&P 500 and the bank stock index over the past 3 and 6 month periods.
• Technical the bank is exhibiting positive moving average trends in the short term and the rate of change is positive.

A basic bank screen that meets the points above can be created within HingeScreen. A user can go to create mode and add the following criteria. In this case, we are searching for financial institutions priced above $2 with volumes over 10K that have outperformed the S&P 500 and KBW bank index. The trailing dividend yield must be above 0.5% (forward yield can also be considered). Technically the rate of change (ROC) must be positive, while the recent 20 day moving average must be above the 50 day. These technical points will show a recent positive trend in stock pricing.

The screen is saved as BankScanOne.

The next step is to jump to Execute Mode and run the screen. The results align with expectations; it is a mix of stronger regional banks, REITs (primarily with a healthcare focus), and some financial service organizations.

The stronger banks in the results such Valley National Bancorp NJ (VLY), and Wilshire Bancorp (WIBC) are examples of regional institutions that avoided obscene mortgage lending and maintained their balance sheets in good order over the past few years.

The majority of the REITS that show up in the results such as Health Care Property (HCP), Health Care REIT (HCN), and Healthcare Realty Trust (HR) are examples of REITS that are focused on stronger market segments and have easily avoided the worse aspects of the real estate downturn.

A few financial service organizations such as Northern Trust (NTRS) and PNC Financial Serv. (PNC) also show up in the results. A number of players providing financial services have used the downturn to strengthen their offerings and market position.

Using HingeScreen it is easy to save the results to a spreadsheet for further evaluation. Simply press the button on the right that looks like a floppy disk and the results are saved to a spreadsheet format file that can be opened using Excel. By default the saved result files are placed in the C:\Program Files\HingeFire\Results directory.

HingeScreen is a powerful tool to find stocks that meet the performance and diversification needs for your portfolio. It is useful for identifying candidates that are likely to come out of a downturn as leaders in a sector. HingeFire provides an excellent video library outlining how to use the tool at: http://www.hingefire.com/Education/KnowledgeBase/HingeVideos.aspx

Fear grips banking customers in Venezuela

The march towards nationalization continues unabated. Over the past year the oil, telecommunications, electric, and steel-making sectors have been impacted in President Chávez’s ceaseless drive towards a socialist paradise.

Now the crisis has spilled over to the financial sector as the government seized control of a large Spanish-owned bank, Banco de Venezuela. Nervous depositors lined up seeking reassurance, and many fear a run on the bank in the coming week. Not helping matters, the central Venezuelan bank has been vague in attempting to reassure depositors that the banking system was solid.

Nearly all the companies seized by the government have been run into the ground over a short period of time; productivity has dropped and the feeble earnings have not been reinvested back into the companies.

Venezuelan bonds fell Friday for a second day reflecting “fears over the possible collapse of several banks because of rules forcing them to sell $5 billion of complex securities called structured notes. Banks bought the notes last year at values tied to high black-market rates of the dollar, exposing some of them to huge losses after the local currency, the bolívar, strengthened this year.”

Attempts of individual banks to negotiate their way out of the crisis has not paid returns as the IMF and World Bank have effectively shut off the spigot after being threatened with expulsion by Mr. Chávez.

Even the high price of oil can not cover the cost of large scale programs in Venezuela beyond the next couple of years. Any significant drop in the price of oil will cause an immediate fiscal crisis. At 32%, Venezuela also is experiencing the highest inflation in Latin America. Food-based inflation is above 52%, a crushing level for most of the population. The fiscal crisis and high inflation levels can be directly linked to government policies. This has left the poorest portion of the population, which Chavez claimed would be helped by the government’s policies, in even greater despair.

Is your online bank account safe?

A recent report by researchers at the University of Michigan demonstrates that bank & brokerage websites are plagued by security flaws. These widespread design flaws make it easier for accounts to be compromised. According to Finextra, an examination of 214 bank websites revealed that more than 75% have cracks in security that hackers could exploit to access customer information and accounts.

‘Says Atul Prakash, professor in the department of electrical engineering and computer science: "To our surprise, design flaws that could compromise security were widespread and included some of the largest banks in the country. Our focus was on users who try to be careful, but unfortunately some bank sites make it hard for customers to make the right security decisions when doing online banking."’

This should be a cause for concern for all banking customers, the prospect of going online and finding your account cleared out is a nightmare. Security remains the top concern for banking institutions, and regular steps have been taken to improve the situation. The state of affairs is not as dire as outlined by researchers because many of the security flaws are difficult to exploit.

The real issue with the banking industry is the lack of a systematic defined approach to security testing their websites. There needs to be a single standard that all online financial institutions are tested against.

Cisco has some excellent initiatives such as SAFE that improve the security of customer deployments by defining configurations and testing steps that reduce vulnerabilities. The company also has service-focused teams of specialists that aid customers in securing their networks.

During my time at Cisco, I drove an initiative called SITE (Security Integration, Test and Evaluation) which defined a structured process for evaluating potential vulnerabilities, performing boundary & penetration testing, and evaluating the results in a logical matter. This approach was incorporated as part of the quality system and utilized across the company in testing multiple product lines. The process could be scaled from “light” to “heavy” based on the needs of the team performing the evaluation. The use of automation tools for “fuzzing” (sending in deliberately mal-formed packets) and other security testing was crucial for meeting tight deliverable schedules within the framework of SITE. Over the years, the original SITE initiative has evolved and now is included within the scope of other security enhancement programs (run by some real sharp engineers) that raise the standards to even a higher level.

What does the banking industry lack? Basically the online financial industry needs to define a SITE type of initiative and a set of common standards for securing their websites. The problem is not the inclusion of vulnerabilities (which will always pop-up), but the lack of screening for vulnerabilities in a structured manner. Banks do not have a methodical approach to find the vulnerabilities, nor a structured system for ranking and resolving the issues. Most banks are flying blind to what potential vulnerabilities currently exist on their websites because testing has only been performed piecemeal over time.

Banks and brokerages have a lot at stake; losses from compromised accounts continue to mount. It is time to raise the bar in the financial industry and reduce the exposure faced by customers. This requires a change in direction for security practices, and includes a need for information services cooperation between competing institutions. The best approach would be to create a focused team with IT representatives from multiple banks to define a central testing standard utilizing a structured approach for evaluating the security of online banking websites. After adoption, the methodology would need to be driven as a requirement across the industry.

Important: Funds over the FDIC limit at WaMu

If there is one post to sit up and pay attention to this month - This is the post.

Get your funds over the FDIC limit out of WaMu now! There appears to be a run on the bank forming and one likely end-game will be the FDIC seizing the bank; similar to the situation with another large bank, IndyMac, recently.

Knowledgeable investors have been removing funds for several weeks and now the situation has caught the attention of the mainstream press. A recent report by Gimme Credit cited liquidity concerns with Washington Mutual.

"We won't use the phrase `run on the bank,' but we would be remiss if we did not observe that many creditors have quietly been pulling funds,'' wrote Shanley, based in Chicago. Their actions are "presenting an increasing funding challenge,'' she wrote.'

The bank disputes the findings stating that 7 billion cash infusion led by TPG Inc, cost reduction plans, and a lack of need for commercial paper will help Washington Mutual ride out the storm. Many analysts are skeptical. These restructuring actions are helpful but will not enable the bank to survive a crush of depositors withdrawing funds from an institution that is increasingly looking like a house of cards. Standard depositors are likely to follow the lead of savvy unsecured creditors over the upcoming weeks as more bad press continues.

The second day of WM stock in free-fall is a more telling sign about the challenges facing the institution. While some would state that withdrawing your funds over the FDIC limit does not help the stability of the bank, the other side of the coin states that why should your be out of your funds from a personal finance perspective because you did not take action in the early stages while the crisis was unfolding.

Wachovia Earnings Call

Wachovia held its earnings call Tuesday. As expected the news was bleak; headlined by an $8.9 Billion loss, a steep dividend cut, and 10,750 job cuts. However, the stock rallied on the news and earnings call. While the loss and job cuts are painful, it appears that Wachovia has a plan to turn its operations around and deal with the bank’s mortgage exposure.

The stock rally demonstrates the confidence that Wall Street has in new CEO Robert Steel. Some of the points in the turn-around plan were outlined in the conference call transcript. Wachovia will not be raising more capital or selling additional stock that would dilute current shareholders stake. The dividend cut to 5 cents per share will save $700 million per quarter, while the wholesale mortgage operation will be shut down. Analysts expect that the bank will remain an independent operation.

Wachovia: Turning the corner

The recent press headlines for Wachovia have been bleak recently; auction-rate security investigation raids, analyst downgrades, and sliding share prices. It seems that the bank can't catch a break from the negative media coverage. This is on top of all the earlier problems that led many to question the underlying integrity of the entire institution which in the past has joined telemarketers to scam it's own customers, and was fined $145 million from the Feds.

Despite all the difficult news there is a bright spot -- and his name is new CEO Robert Steel . Right from the initial conference call it appears that he is on the right track. He is going to first evaluate the "challenges" faced by the bank with particular focus on the residential mortgage portfolio and exposure to commercial real estate. Steel promises to outline his strategy on July 22, when the bank is slated to report its second quarter earnings. In a couple days we will be able to see how Wall Street reacts to the earnings and the vision of the new leadership.

Based on his reputation in both capital markets and government; Steel is likely to restore what is most important to Wachovia - a reputation for integrity.