A case for European consolidation; U.K. probing Barclays spyware

Wall Street Journal

On a roll

Homebuilder stocks hit their highest level in 15 years Monday, “boosted by a recovery in the housing market as record-low mortgage rates draw buyers. The S&P 500’s home-building subindustry index—currently made up of Lennar Corp., D.R. Horton, PulteGroup and NVR —is up 23% this year. The S&P 500, in comparison, has risen 4%.”

“The housing market has picked up after health and economic fears tied to the coronavirus pandemic sent sales plunging earlier this year. Sales of new single-family homes increased sharply in June from the prior month. A big factor supporting demand: Mortgage rates have tumbled. In July, the average rate on a 30-year fixed mortgage fell to 2.98%, according to Freddie Mac, its lowest level in nearly 50 years of record-keeping.”

Financial Times

Rejected

“The Federal Reserve has turned down Goldman Sachs’ request for less onerous treatment after the results of its annual stress test, leaving the bank with the highest capital requirement among its large peers. Goldman was among five banks that formally appealed the results. The other banks that requested reconsideration — all of which were also turned down — were BMO, Capital One Financial, Citizens, and Regions.”

“This year is the first time in which the Fed’s capital requirements include a ‘stress capital buffer’ designed to see banks through severe shocks and a deep recession. The stress buffers are equivalent to a bank’s estimated capital erosion under the Fed’s most severe scenario, plus the dividends they plan to pay. The Goldman Sachs and Morgan Stanley stress buffers were 6.7% and 5.9%, respectively.”

(American Banker’s Hannah Lang covered the Fed's move here.)

Union of the weak

The FT makes the case for a combination of some of Europe’s worst-performing banks. “After dismal quarters from Commerzbank, Société Générale and UniCredit, it is time for smart deals,” the paper argues. “If policymakers and investors apply enough pressure, a SocGen-Commerzbank combination might make some sense — it would certainly signal that everyone is serious about a single European market for banks, and throw up ample opportunity for further cost-cutting, something Europe’s relatively small, but horribly bloated banks desperately need. Maybe for good measure, throw in Italy’s UniCredit, which plunged to a €2.3 billion first-half loss and has made little secret of its interest in deals with both SocGen and Commerzbank.”

Pyrrhic victory

“A former top currency trader at Citigroup has won an unfair dismissal case against the bank but cannot expect to return to his job, a London employment tribunal has ruled. Rohan Ramchandani, who was a former head of European foreign exchange trading, was sacked from Citi in January 2014. He was later charged with foreign exchange rigging by the U.S. Department of Justice but was acquitted by a New York jury in October 2018. Ramchandani had alleged that the bank unfairly dismissed him from his role without due process or warning and was seeking reinstatement. Citi told the tribunal hearing last year that Ramchandani was dismissed because he breached its code of conduct and guidelines.”

“Employment judge Alison Russell ruled in favor of Ramchandani’s claim for unfair dismissal on procedural grounds. However, she found that even if Citi had followed correct procedure, Ramchandani’s employment would have been terminated anyway in 2014 for his “foolish, blameworthy behavior.’”

Chinese sanctions

The Trump administration’s sanctions in response to the “draconian national security law Beijing has imposed on Hong Kong … could have far-reaching implications beyond the targeted individuals, with banks among those that could be affected.”

Elsewhere

Big brother

Barclays is being investigated by the U.K.’s privacy watchdog, the Information Commissioner’s Office (ICO), “over allegations that the British bank spied on its staff,” Reuters reported. Late in February the bank said it was changing how it used the Sapience software system, “which tracked how employees spent their time at work, after critical media reports accused the bank of spying on its staff. Barclays said it would now track only anonymized data, in response to staff feedback that the system was intrusive.”

“People expect that they can keep their personal lives private and that they are also entitled to a degree of privacy in the workplace,” an ICO spokesman said. “If organizations wish to monitor their employees, they should be clear about its purpose and that it brings real benefits. Organizations also need to make employees aware of the nature, extent and reasons for any monitoring.”