Accounting board rejects bid to ease CECL; rate drop sparks mini refi boom
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Hurry up or wait
Commerzbank and Deutsche Bank are of two minds on how quickly to proceed with merger talks. While the former “would like to see a speedy decision on whether to deepen the discussions or not,” the latter “needs more time.” However, “the differences on the timeline are not seen as significant enough to derail the negotiations.”
But one thing that could wreck the proposed deal is lack of financial support from the German government, and on Wednesday lawmakers warned finance minister Olaf Scholz “that they will block any attempt to invest public money” into a merger of Germany’s two biggest banks. “One thing that we will not stand for is that the state gives more money,” said Bettina Stark-Watzinger, chairman of the Bundestag’s finance committee.
At the same time, unions representing workers at the two banks have planned “a series of marches and warning strikes … as they gear up for a bitter campaign against the merger talks.”
Meanwhile, Italy’s UniCredit is preparing to make a bid for Commerzbank should the talks with Deutsche falter.
Wall Street Journal
The Financial Accounting Standards Board Accounting rejected a proposal by regional banks to relax an accounting rule change that will force banks to book all expected future losses on their loans as soon as they are made. “The rejection means the accounting change — known as CECL, for current expected credit losses — will go forward as planned at the start of 2020 for publicly traded U.S. banks. That will force some banks to boost their loan-loss reserves, cutting into earnings and regulatory capital.”
Good news, bad news
The recent sharp drop in mortgage interest rates to around 4% has created a mini refinancing boom, “a piece of good news for banks and other lenders that have been grappling with a cooling housing market.” Mortgage applications rose 18% last week, with refi applications up 39%, “a welcome sign for mortgage executives who had earlier been bracing for a continued rise in rates in 2019.”
Still, “while they produce a short-term fillip, refinancing waves are at best a mixed bag for banks. Lenders that hold big books of mortgage-backed securities are forced by early repayments to reinvest those holdings at lower rates. Similarly, if a bank refinances a mortgage that it is currently holding on its books, then it earns a lending fee but is left holding a lower-yielding loan.”
Stand by your man
National Economic Council Director Larry Kudlow said President Trump remains committed to Stephen Moore, his announced nominee to join the Federal Reserve, “despite concerns about the conservative economic analyst’s qualifications, political independence and past legal woes.” Trump “completely supports Steve. I certainly do,” Kudlow said. “We are fully behind him. He’s a smart guy, I think he would be a breath of fresh air at the Fed. So far it’s all systems go.”
Two Democrat senators that chair committees want more information about Moore’s reported unpaid federal taxes.
Danske Bank and Swedbank “should have known” what they were getting into in Estonia, when "big profits were pouring out of a tiny business," the paper says. "Danske foolishly trusted in its anti-money laundering controls, although it had little insight into what was going on locally — the Estonian branch used a different computer system and most documents were in Estonian or Russian. Swedbank’s culpability is less clear, although it handled €135 billion in high-risk non-resident flows in Estonia.”
New York Times
Banks and guns
Guns Down America, an anti-gun group, has begun ranking 15 banks on their ties to the firearms industry and trade groups, including the National Rifle Association. Six of the banks, including JPMorgan Chase and Wells Fargo, received failing grades, while Citigroup earned a B, the highest rating. “We’re not interested in shaming banks or running a campaign focused on how evil they are. Our end goal is to change the way banks make decisions when doing business with the gun industry,” said Igor Volsky, the group’s founder and executive director.
Tim Sloan’s abrupt departure as CEO only adds to the turmoil inside Wells Fargo. “The bank, already under fire from regulators and lawmakers, is again caught flat-footed as it starts what could be a lengthy search for a new CEO,” Bloomberg reports. “No formal talks with possible successors have begun and a recruiting firm had yet to be selected as of late Tuesday. One tally of supposed candidates lists more than two dozen men and women.”
“What’s the new plan? What’s the new strategy going forward? It’s a big question mark for everyone right now.” — Kyle Sanders, an analyst at Edward Jones & Co., about Wells Fargo’s business strategy as it searches for a new CEO