Bank bonds holding their own; Warren’s beef with Wells

Wall Street Journal

Bonds to the rescue
Bank stocks have underperformed the overall market of late, but bank bonds have more than held their own, “sending an encouraging signal at a time when financial stocks are under pressure from recession fears.” While the KBW Nasdaq Bank Index is down 11% so far this month, compared to the S&P 500’s 2.7% drop, “the extra yield, or spread, that investors demand to hold bank bonds over U.S. Treasurys hasn’t climbed as much as those on bonds backed by industrial companies. In fact, the average spread on bank bonds recently fell to 84% of the spread on investment-grade industrial-sector bonds, the lowest level since February 2016,” the paper notes.

“Investors and analysts say bank debt has retained its appeal largely because of postcrisis regulations that have forced banks to hold more loss-absorbing capital and strengthen their balance sheets. In contrast to where it stood during the last recession, the banking sector is now seen as among the least vulnerable to a crisis if the economy were to slow sharply. Adding to the demand for bank bonds this year: Financial institutions have sold relatively few new bonds compared with previous years when they were under greater pressure to issue debt to meet certain regulatory requirements.”

Showtime
The Trump administration is getting close to releasing its “long-awaited plan to return Fannie Mae and Freddie Mac to private-shareholder ownership.” The proposal, which may be announced shortly after Labor Day, “would likely seek to put the companies on a sounder financial footing and then release them from government control if Congress doesn’t enact a more fundamental overhaul in the meantime.” The plan would include “recap and release,” ensuring that the “firms have adequate capital to absorb loan losses in a future housing slump.”

Separately, American Banker reports former FDIC Chair Sheila Bair has joined Fannie Mae's board.

Financial Times

Monopoly money?
Facebook’s proposed digital currency, Libra, “is under early scrutiny” from the European Commission, which has sent out questionnaires to companies involved with the project, “amid concerns the currency could unfairly disadvantage rivals.” The commission is “currently investigating potential anti-competitive behavior” after fears over “possible competition restrictions” relating to the use of consumer data.

Seed money
Tala, the California-based fintech that makes small loans to people in emerging markets, nearly doubled its equity valuation to $200 million by raising $110 million in its latest funding round. “Tala offers uncollateralized loans of between $10 and $500 for customers without traditional bank accounts or credit histories via an app. Tala analyzes their mobile phone use and in-app behavioral data. Using this data, the company’s machine-learning algorithms calculate individual risk. Customers pay a flat, one-time fee of up to 15% at the end of a loan term, which is 30 days on average.” The company plans “to launch new financial products and expand beyond credit to help customers send, protect and grow their funds.”

Leveraged asset
Led by former Trump administration official Dina Powell, “Goldman Sachs has clawed its way into contention for a role in Saudi Aramco’s planned stock market listing, after a months-long charm offensive by top executives.” Powell, an Egypt-born Arabic speaker who left Goldman in 2017 to join the White House before returning a year later, “has leveraged her knowledge of the region and relationships with the kingdom’s highest authorities to seek business for Goldman.”

New York Times

Demanding answers
Sen. Elizabeth Warren, D-Mass., is asking Wells Fargo’s interim CEO C. Allen Parker to explain why the bank is “charging overdraft fees on transactions in accounts its customers believed to be closed, costing them hundreds or even thousands of dollars.” In a letter to Parker, Warren “asked how much money the bank had collected over the past five years by charging overdraft fees on empty accounts past the dates on which accounts were supposedly closed. The practice was disclosed in a New York Times article last week.”

Daniel Acker/Bloomberg

Elsewhere

Victims
Citigroup and BNP Paribas have been named as “victim” institutions in the U.S. criminal case against Huawei Technologies’ chief financial officer. HSBC and Standard Chartered were previously reported to have had banking relationships with Huawei under CFO Meng Wanzhou, who is currently being held in Canada while fighting extradition to the U.S.

Report to police
Denmark’s financial regulator is planning to share with Danish police its findings that Danske Bank, the country’s biggest bank, overcharged customers, “a scandal that led to the dismissal of the bank’s former interim chief executive. “It’s correct, there is a draft for a police report,” a spokesman for the Financial Supervisory Authority told Reuters. “The FSA said in June it was investigating the bank for failing to inform customers that it expected a poor performance from its Flexinvest Fri investment product, and for continuing to sell it to new customers.”

Quotable

“These new revelations raise grave concerns that despite these assurances, Wells Fargo is still fundamentally broken and has not only continued to scam customers out of thousands of dollars with impunity, but has even targeted customers who were attempting to leave the bank — and may have been victims of previous scams — to unfairly collect one final set of lucrative fees for Wells Fargo.” — Sen. Elizabeth Warren, D-Mass., in a letter to Wells interim CEO C. Allen Parker, seeking answers about allegations that the bank charged customers overdraft fees after the bank closed their accounts