Bank earnings underwhelm; ING eyes Commerzbank
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Morgan Stanley beat analysts’ estimates even as first quarter earnings and revenue were below year-ago levels. Profit fell 9% while revenue dropped 7%. The report “wraps up a big-banks earnings season that investors viewed as mostly underwhelming. Big banks like JPMorgan Chase & Co. and Bank of America Corp. fared better as their giant consumer businesses balanced out slower trading and capital markets.” The Financial Times called earnings season "mixed."
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The White House is starting to look at other candidates beyond President Trump’s preferred choices, Herman Cain and Stephen Moore, to join the Federal Reserve Board. Both men “may face an uphill battle winning support in the U.S. Senate if they are officially nominated. The odds that Mr. Cain in particular would garner enough votes for a potential appointment appeared remote last week, when a fourth Republican senator said he would vote against the former pizza restaurant executive.”
“We are talking to a number of candidates. We always do,” said National Economic Council Director Lawrence Kudlow, adding, the president is still enthusiastic about Cain and Moore.
Bank of America, which has “been one of the biggest beneficiaries of rising interest rates over the past few years,” may be about to lose that advantage, according to the Wall Street Journal. Chief Financial Officer Paul Donofrio “told investors all they needed to know” after the bank reported first quarter earnings on Tuesday. “Net interest income rose 6% last year on a combination of higher rates and around 3% gross domestic product growth in the U.S." the paper reported. "This year, with the Federal Reserve on pause, rate expectations pared back and GDP growth slowing, net interest income will likely rise only around 3%.” Wall Street Journal, Financial Times, American Banker
“Boring banking is exciting again,” the FT opines. “The stars of the first-quarter earnings season at the big U.S. banks were not high-powered dealmakers, brilliant bond traders or wizards of corporate finance. They were tellers, mobile apps and credit cards.”
Wall Street Journal
Spain’s Banco Santander and France’s Credit Agricole have agreed to combine their custody and asset-servicing operations to create €3.34 trillion ($3.78 trillion) custodian business. “The joint venture comes amid a push for consolidation of European banks which are struggling with low returns and high costs.” The new entity would be “the third largest in the eurozone by assets under custody after France’s BNP Paribas and Société Générale. However, they are much smaller than their U.S. peers. State Street Corp., one of the biggest in the U.S., finished the year with $31.6 trillion in assets under custody.”
Another European bank apparently wants to take over Commerzbank, which is in merger talks with its German rival Deutsche Bank. “ING chief executive Ralph Hamers has approached Commerzbank boss Martin Zielke suggesting a cross-border merger of both banks that could include the relocation of ING’s headquarters to Frankfurt. The move from the Dutch adds another twist to the protracted takeover saga over Germany’s second-largest listed lender.” The paper said the two executives had been “informally in touch” before the Deutsche Bank talks began last month. The paper reported earlier this month that Italy’s UniCredit may be interested in Commerzbank if no deal is reached with Deutsche.
A London court “has breathed new life” into an “unprecedented” £14 billion consumer class action lawsuit against Mastercard for allegedly charging illegal fees, after reversing a decision by the U.K.’s competition tribunal. “The Competition Appeal Tribunal threw out the claim two years ago, saying it was not suitable for collective proceedings. But on Tuesday the Court of Appeal set that ruling aside, saying the tribunal had applied the wrong legal test in making its decision. The CAT will now have to reconsider the case,” which was filed on behalf of more than 46 million British consumers.
German financial regulator BaFin has accused two FT reporters and about 10 short sellers of alleged market manipulation over suspected accounting irregularities at Wirecard, the German payments processor. “BaFin confirmed it filed a criminal complaint but declined to disclose the identities of the suspects or to give further information on the nature of the suspected misconduct. On January 30, the FT reported that a senior Wirecard executive was suspected last year of using forged and backdated contracts in a string of suspicious transactions that raise questions about the integrity of the group’s accounting. Shares in Wirecard lost 35% in the days following the report.”
The paper said, “Any allegation against the FT or any of its reporters or staff of market manipulation or unethical reporting in relation to Wirecard is baseless and false. It is a smokescreen obscuring the serious allegations that were revealed by the FT.”
“At the end of the day, it will probably be up to Herman Cain if he wants to stay in that process or not. As far as we are concerned, he is still in the process and it is proceeding.” — National Economic Council Director Lawrence Kudlow on Cain’s chances to be nominated to the Federal Reserve