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Allegations of money laundering on a massive scale; U.S. banks see lean times ahead

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Facilitators

“The giants of Western banking move trillions of dollars in suspicious transactions, enriching themselves and their shareholders while facilitating the work of terrorists, kleptocrats, and drug kingpins,” according to suspicious activity reports filed with the U.S. Treasury Department’s Financial Crimes Enforcement Network obtained by BuzzFeed News. “And the U.S. government, despite its vast powers, fails to stop it.”

“These documents, compiled by banks, shared with the government, but kept from public view, expose the hollowness of banking safeguards, and the ease with which criminals have exploited them. Profits from deadly drug wars, fortunes embezzled from developing countries, and hard-earned savings stolen in a Ponzi scheme were all allowed to flow into and out of these financial institutions, despite warnings from the banks’ own employees.”

HSBC’s stock price fell to its “lowest level in more than 25 years” in Hong Kong Monday following the publication of the article. Standard Chartered’s stock was also down sharply. The two U.K.-based banks “were among the five lenders that appeared most frequently in the documents. StanChart disclosed more than $166 billion in suspicious activity reports while HSBC disclosed almost $4.5 billion." Wall Street Journal, Financial Times, New York Times

Crisis banking, here and abroad

“U.S. banks are preparing investors for a prolonged period in which low interest rates are a drag on their profits,” the Financial Times reports. “Speaking at an industry conference last week, most of the nation’s biggest banks — including JPMorgan Chase, Wells Fargo, Citigroup and Bank of America — trimmed their forecasts for net lending revenues for 2020, attributing the cuts to sustained low rates as well as waves of homeowners refinancing their mortgages at lower rates.”

“Worries about the impact of low rates drowned out more encouraging news delivered in the banks’ updates. Most said that reserves for credit losses, after big increases in the first two quarters of the year, were unlikely to rise in the third, given solid credit performance. Almost every bank reported that the number of borrowers taking advantage of payment holidays continued to fall.”

In Europe, meanwhile, “the coronavirus pandemic has brought a sense of urgency to [the region’s] ailing banks to scale up or risk dying,” the Wall Street Journal reports. “Around the region’s capitals, banks are exploring mergers after a decade of weak returns. Mergers are a way to combine balance sheets while taking out a large chunk of costs, including by closing duplicate branches and laying off staff.”

“Chatter about a wave of consolidation in Europe has been going on for a decade because many countries have a fragmented banking system with too many banks and returns on equity have been slim or nonexistent. Action was constrained by issues ranging from regulatory hurdles to fights over which management team would run a combined entity. Now, the feeling that something needs to be done and done soon has never been so strong, according to bank executives and outside advisers.”

Wall Street Journal

What to do with it

“Surging deposits and declining lending are driving banks to dramatically increase their holdings of U.S. Treasuries, offering significant support to the bond market at a time of massive government borrowing. Holdings at U.S. commercial banks of Treasury and agency securities other than mortgage bonds have grown by more than $250 billion since the end of February as their total deposits have jumped by more than $2 trillion, according to Fed data.”

“Analysts say the surge in deposits has been driven by several factors, including government stimulus programs and the cautious behavior of many individuals and businesses in the midst of a pandemic. Banks, meanwhile, have been less willing to lend because they are nervous about the economic outlook, giving them more cash to invest in assets like Treasuries.”

Is the party over?

Indeed, many lenders have cut back on lending to consumers as “the pandemic is wreaking havoc in loan-laden white-collar workers’ households. While lower-wage workers have borne much of the brunt, the crisis is wreaking a particular kind of havoc on the debt-laden middle class. Roughly six months into the pandemic, many lenders that let borrowers skip monthly payments now expect to get paid again. They have set aside billions of dollars to cover potential losses on soured consumer loans—an acknowledgment that America’s decadelong debt binge has come to an end.”

Can’t face it

Ant Group’s “ambitious and costly effort to install facial-recognition devices at retailers that would allow people to make payments by smiling at a screen without having to use their phones … has largely failed to gain popularity as some consumers have found the sign-up process cumbersome and had concerns about how their images and data would be used. The coronavirus pandemic, which forced many store closures and led to an increase in mask-wearing, has also hampered wider adoption of the technology.”

“It shows that even a major fintech innovator with a large customer base can face privacy concerns and struggle to change user habits.”

Financial Times

The office comes to you

UBS is considering providing its staff with “augmented reality headsets that would allow them to recreate the experience of working in a packed trading floor without leaving their homes.” The Swiss bank “has set up a working group focused on ‘reimagining the trading floor’ which has also considered setting up screens on traders’ desks with camera feeds from their co-workers to encourage collaboration.”

“If people really can’t come to the office, can we create a virtual presence?” Beatriz Martin, the bank’s U.K. chief executive, told the Financial Times.

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