A-Rod, J. Lo invest in fintech; Inverted yield curve hurts regionals

Receiving Wide Coverage ...

Fair housing
Two more papers weighed in on the Department of Housing and Urban Development’s proposed rule to raise the bar on housing discrimination claims. The rule “would make it harder to hold banks accountable if their underwriting algorithms repeatedly deny mortgages to seemingly qualified black families,” the New York Times says.

“Under the new plan, HUD would require plaintiffs to clear a five-part test to bring a fair-housing case — including evidence that the allegedly discriminatory practice is ‘arbitrary, artificial and unnecessary,’” reports the Wall Street Journal.

Wall Street Journal

Star power
Alex Rodriguez and Jennifer Lopez are taking a stake in Acorns Grow Inc. the California-based fintech, “joining an investor base that includes Ashton Kutcher, Bono and Kevin Durant. The influencer strategy is the brainchild of Acorns Chief Executive Noah Kerner … [who] is trying to transform Acorns from a niche savings app that invests users’ spare change into a bank alternative used by 100 million consumers.”

“Acorns and other fintech startups have raised billions of dollars in venture capital and won over early adopters open to trusting unproven companies with their financial lives. What they haven’t done,” with a few exceptions, “is gone mainstream.”

Change agent
Comptroller of the Currency Joseph Otting “is touring the country to sell his plans to modify” the Community Reinvestment Act’s lower-income lending requirements “and overcome resistance from other regulators, banks and community advocates. Mr. Otting is seeking to judge banks’ CRA performance by giving them dollar targets based on how many deposits they hold in different areas,” rather than being “graded on the amount and quality of loans, investments and services they provide to poorer neighborhoods near their branches” as they are currently. “Mr. Otting has sought to change the rules jointly with the Federal Reserve and Federal Deposit Insurance Corp., the two other agencies that implement CRA, but expressed frustration with the pace of the process.”

Not at the bottom
“Ultralow interest rates are making it a miserable year for Japanese banks. The bad news is that things can still get worse.” Chiba Bank, for example, one of the country’s largest regional banks, is being squeezed by “three decades of declining and now subzero benchmark interest rates,” which has cut its interest income in half over the last 10 years. “Unlike the country’s megabanks, such as Mitsubishi UFJ Financial and Sumitomo Mitsui Financial, it can’t reasonably escape by venturing overseas for other assets,” so it has focused on the local real estate market, which “is already showing signs of strain.”

“Any knock to the housing market in Japan caused by an economic downturn would hit Chiba Bank disproportionately hard. And if the Bank of Japan attempts to combat economic problems by cutting interest rates even further, as it insists it is prepared to do, the pressure on profitability would be compounded.”

Financial Times

Vulnerable
The inverted yield curve “has had a particularly pronounced effect on U.S. regional banks, whose shares are among the worst performers of the past few weeks.” These “so-called asset sensitive banks, those with a business heavily weighted towards floating-rate loans such as to businesses, face a hit to their profits because of the slump in yields, which pulls down the interest they will receive. Another result: in some cases, their shares appear to have started trading in lockstep with changes in the yield curve.”

Is flexible the answer?
European banking and asset management associations are considering reducing stock market trading hours to try to boost the number of women in the industry. “Compressed market opening times is an issue we are discussing with our members,” said Simon Lewis, CEO of the Association for Financial Markets in Europe (AFME). “Work is at an early stage but we are supportive ... of proposals that would encourage more flexible working practices in the European equities trading market.”

“The world of equity trading is notoriously male-dominated, with market participants saying the aggressive trading floor culture makes it difficult to recruit and retain female traders,” the paper says. Most major European stock exchanges are open from 8 a.m. to 4:30 p.m.

New York Times

Both sides
The Federal Reserve “is slowly, but steadily, making a series of regulatory changes that could chip away at new requirements put in place to prevent a repeat of the 2008 meltdown. Fed officials and others who support the changes, including big banks, say … the tweaks will not weaken the ability of banks to withstand financial losses but will reduce burdensome regulations that could have unintended consequences, like encouraging risk-taking," the paper says.

“But some current and former Fed officials worry that the central bank and its fellow regulators are giving large banks, which are making big profits, an unnecessary gift that could leave the economy exposed in the next downturn.”

Washington Post

Upping its defense
Capital One is acquiring KippsDeSanto, an investment bank focused on the defense and aerospace markets. KippsDeSanto will retain its name and operate as an independent subsidiary of Capital One.

“Capital One and KippsDeSanto have a shared goal of providing clients with trusted advice and counsel enabled by deep industry expertise and a seamless client experience,” said Steve Tulip, head of capital markets for Capital One commercial banking “By bringing our teams together, we’ll be able to add scale and expertise to our growing M&A advisory group which will benefit clients in a wide variety of industries.” Both companies are based in Virginia.

Quotable

“The disparate-impact concept is a nebulous and complex doctrine that, using statistics, could be used to challenge many, many actions. The goal here is to bring more certainty into this area of the law so that state and local governments, mortgage lenders, fair housing advocates, everybody can understand what disparate impact is.” — Paul Compton, the Department of Housing and Urban Development’s general counsel, explaining why the agency wants to raise the burden of proof on people bringing housing discrimination claims