An upside for banks in trade wars; window closing for regulatory rollbacks?

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Wall Street Journal

Get a move on
Big banks and their Republican allies in Congress are worried that the regulatory rollback initiative is losing steam and may not get finished in the next two years, when the electoral map may change. “The rollback efforts combine those required under last year’s law and those that can be put into place by the regulators on their own. Democrats and critics of the changes say the initiatives already underway go too far, could undermine the financial system and aren’t warranted when banks are posting record profits.” Said Sen. Mike Rounds, R-S.D., of the lack of progress on a regulatory overhaul signed into law in 2018: “The bill can’t work unless it’s implemented.”

Profiting from trade tensions
Despite rising tensions between the U.S. and its main trading partners, “banks’ revenues from financing cross-border commerce are in the best shape in years.” Revenue from trade finance at some of the world’s largest banks rose slightly to $5.8 billion last year, “the first time in six years it didn’t fall, and is on track to grow further in 2019.”

“Trade tensions have spurred demand for banks’ services as intermediaries in the cross-border movements of goods and services. In times of trade peace, companies do business directly with each other and don’t feel the need to insure against a lot of risk. But when a tariff makes a company’s usual trade partners too expensive, or political risk makes dealing with them untenable, they turn to banks to provide payment guarantees or help them establish new trade routes.”

A coin by any another name
The market for initial coin offerings may be “mostly dead,” but that hasn’t stopped startups from trying to raise money with digital tokens another way. “Money is starting to pour into what are called initial exchange offerings, amid a broad rebound in the price of bitcoin and other cryptocurrencies. Although IEOs share similarities with, and sound almost like, ICOs, there is one key difference: Digital tokens are sold to investors through a crypto exchange,” which acts like an investment bank, not directly through the startup.

But “critics say the new deals don’t necessarily solve the problems that plagued ICOs, and give even more power to mostly unregulated crypto exchanges. Some of these platforms have had trouble with hacks, security lapses, fake trading volumes or fraud.”

Financial Times

Piling on
"Deutsche Bank has discovered serious failings in its anti-money laundering and sanctions controls that allowed checks and high-value electronic payments to be processed without proper screening,” the FT reports Monday. “The weaknesses lasted years, internal auditors found, in the latest compliance problem for the embattled German lender.”

Meanwhile, the German bank took another hit on Friday evening when Fitch Ratings cut its credit rating to BBB, “or two notches above junk, on concerns over the bank’s ability to execute the restructuring necessary.”

“The downgrade of Deutsche Bank reflects its continued difficulty and limited progress in improving its profitability and stabilizing its business model,” Fitch said, adding “unlike global rivals, Deutsche’s retail banking operations in Germany are not strong enough to offset the headwinds.”

Out of control?
Allied Wallet, an online payment provider that settled charges with the U.S. Federal Trade Commission last month over charges it helped fraudsters to steal more than $110 million from consumers in various scams, “was a longstanding client of Wirecard, underlining concern about anti-money laundering procedures at the controversial German payments group. A technology upstart which grew into one of Germany’s largest financial institutions, Wirecard faces scrutiny over whether its internal controls have kept pace with its rapid expansion.”

New York Times

Settled
Wells Fargo has agreed to settle for $386 million a class action lawsuit brought by auto loan customers who say they were forced to buy insurance they didn’t need, “putting to rest one of its many legal problems.” According to the Times, the bank had been buying the insurance for customers and applying it to their loan amounts without their knowledge, “pushing more than 270,000 of them into delinquency.”

Quotable

“The opportunity for banks is our ability to finance inefficiencies in the supply chain.” — John Ahearn, global head of trade at Citigroup, explaining why global trade tensions have been good for banks.

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