Bank earnings may have upside; Bernie targets banks
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The Department of Justice has begun a criminal investigation into the money-laundering scandal at Danske Bank. The Danish bank said it is cooperating with the probe. The bank also canceled a share buyback program “after Danish authorities ordered it to build up capital in case of a pending fine or financial trouble.” Wall Street Journal, Financial Times
Separately, five federal financial regulators have told community banks and credit unions they can “share certain resources for anti-money-laundering compliance purposes, helping them address the risk of financial crime while keeping down costs.” However, each institution would be required to ensure its own compliance with the law. “Sharing resources in no way relieves a bank of this responsibility,” the statement from the regulators said.
Also, two U.S. senators have asked the Government Accountability Office to investigate money laundering in the real estate sector. “Residential real estate markets currently have fewer [anti-money-laundering] protections than lending financial institutions, presenting increased risk of access by foreign and domestic criminal organizations,” Sens. Chris Van Hollen of Maryland and Sheldon Whitehouse of Rhode Island, both Democrats, said in a letter to the GAO.
Wall Street Journal
The bar is low
Earlier this week, the paper warned third quarter U.S. bank earnings may disappoint, but now it says bank stocks may be “poised to benefit from low expectations. As one of the weakest sectors so far this year, banks could be poised for a breakout.” While earnings reports from JPMorgan Chase, Citigroup, Wells Fargo and PNC next week “won’t be spectacular,” they “are likely to be solid, and any upside surprises could wake the sector from its slumber. Heading into earnings season, this underappreciated sector is the place to be.”
Entering the 21st century
The Federal Reserve is considering a proposal that would “update its payments infrastructure for the 21st century, a move that could speed up the processing of trillions of dollars for consumers and businesses.” The new system “would operate round-the-clock, upgrading an old system that isn’t open on weekends and has been outstripped by smartphone apps, online shopping and other new technology.”
“There is a growing gap between the transaction capabilities we need and expect in the digital economy — fast, convenient, and accessible to all” — and the current system, Fed Governor Lael Brainard said. The Fed has requested public input.
Crypto for the masses
TD Ameritrade and high-speed trading firm Virtu Financial are backing a cryptocurrency and derivatives exchange called ErisX, hoping to “bring digital currencies closer to traditional asset classes by appealing to brokers, including some used by millions of small retail investors.”
An alert teller at a small HSBC branch near London helped foil the attempted theft of $500 million from the central bank of Angola, “one of the biggest attempted bank heists ever.” After asking a few questions, the teller refused to make a $2 million transfer from an account with the ill-gotten $500 million, and then reported the incident to bank officials, who uncovered the plot.
The stock market’s negative reaction to Synovus’ proposed acquisition of FCB Financial and Fifth Third’s bid for MB Financial “risks discouraging other boards from making bids. Even as banks have returned to profitability in recent years, bank merger activity has not rebounded to anywhere near pre-crisis levels. Heightened regulatory scrutiny has kept bank boards focused on their knitting, and excess capital has been deployed in dividends and share buybacks.”
The recent changing of the guard at several big global banks may be marking a turn in the banking cycle, the paper’s editorial board says.
Deutsche hires a tutor
Seeking to “recover from its failure in June and convince the Federal Reserve it is no longer a ‘troubled’ institution,” Deutsche Bank has hired Oliver Wyman to help its American subsidiary pass next year’s U.S. bank stress test. “Passing the Comprehensive Capital Analysis and Review next year would be an important step in the rehabilitation of Deutsche in the eyes of U.S. regulators and lawmakers, a priority for new chief executive Christian Sewing after years of fines and rebukes.”
New York Times
Failure to forgive
Nine teachers, backed by the American Federation of Teachers, is suing Navient, claiming the student loan servicer “negligently blocked their access to a troubled federal loan forgiveness program for public service workers, adding thousands of extra dollars to their debts.”
Break 'em up says Bernie
Sen. Bernie Sanders, I-Vt., proposed legislation Wednesday that would effectively break up the six largest American commercial banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — plus large insurance companies such as Prudential and MetLife, by placing a hard cap on their asset size. While the “measure is dead on arrival with a Republican Congress and President Trump in office,” it “could become a marker for Democrats seeking support from the party’s progressive voters,” the paper said.
“It would be a mistake to turn back the clock and unwind many of the important steps taken since the financial crisis to improve financial system resiliency. At the same time, I support the efforts that are now under way to better align regulation and supervisory oversight, including proposals to make regulation less burdensome on community banks in the U.S.” — Federal Reserve Bank of Cleveland President Loretta Mester.