Bank earnings should be good; Goldman's priority

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Don't judge a book by its cover
Large U.S. banks are expected to report “blockbuster” third quarter earnings starting later this week, the Wall Street Journal reports. “But underneath the numbers are reasons for caution. Despite a solid economy with rising interest rates — normally a boon for banking — lending activity hasn’t grown as quickly as hoped, and trading is expected to be lackluster.”

The bloom is off the rose in the fintech sector too, where shares of companies like Square and PayPal are down sharply this month. “The declines are partly just a natural correction in some high-flying names, but they also reflect rising market awareness of some basic risks to these companies’ business models. The basic principles of financial risk apply to fintech lenders just as they do to traditional banks,” the paper says.

But some fintechs are still shining. Wirecard, the “controversial” German payments company, announced “an unusual series of bold statements” at its investor day in London, including a sixfold jump in profits by 2025 “based on a view that cash transactions will be replaced by online and mobile transactions.” The company also predicted that its transaction volume will reach €710 billion by 2025, up from €91 billion last year.

It will have some competition. Western Union “is aggressively expanding its digital services as the money-transfer giant tries to keep pace with competitors vying for international transfers.”

We can work it out
HSBC said it will pay $765 million to settle U.S. Justice Department charges that it placed defective loans into residential mortgage-backed securities between 2005 and 2007 and then covered up the risks. Wall Street Journal, Financial Times, American Banker

Separately, Standard Chartered CEO Bill Winters said the bank is “closely engaged in constructive, ongoing discussions” with American authorities to come to an “acceptable resolution” over “historic sanctions violations” that may cost the bank more than $1 billion in fines. The bank, which paid $667 million in 2012 to settle allegations that it violated U.S. sanctions against dealing with Iran between 2001 and 2007, is being investigated for allegedly allowing clients to continue to deal with the country after 2007 and for failing to disclose this during the earlier settlement.

Wall Street Journal

Bailing out
Lennar is in advanced talks with private-equity firm Stone Point Capital to sell its Rialto Capital real-estate lending unit “at a time when the nation’s largest home builder and its peers are struggling alongside a stagnant housing market.” Lennar said in April it was considering selling Rialto as part of its strategy to focus on its core home-building business.

Fixing fixed income
John Willian announced his retirement as head of sales of Goldman Sachs’ “all-important” fixed-income division. “Goldman’s trading arm has lost ground to competitors in recent years as it struggles with calm markets and changing client preferences. The troubles have been particularly deep in fixed-income,” and “fixing the business is a priority” for Goldman’s new CEO David Solomon.

Separately, Nicolas De-Meyer, Solomon’s former personal assistant who was scheduled to plead guilty Tuesday to stealing more than $1.2 million of his former boss’ wine, killed himself by jumping from the 33rd floor of the Carlyle Hotel in Manhattan.

New York Times

Breaking bad
JPMorgan Securities said it fired one of its brokers who was accused of making unauthorized trades in a client’s account “and reaping fees that were 10 times the typical amount.” The broker, Trevor Rahn, was let go three weeks ago for “unacceptable practices” related to the “timing and size of orders entered and resulting transaction charges in a client account.”


“HSBC chose to use a due diligence process it knew from the start didn’t work. It chose to put lots of defective mortgages into its deals. When HSBC saw problems, it chose to rush those deals out the door.” — Bob Troyer, U.S. Attorney for the District of Colorado, commenting on the HSBC mortgage settlement.

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Earnings Fintech Penalties and fines Fixed income Goldman Sachs HSBC Standard Chartered