Bankers set to deliver weak guidance; Tech funds looks to payment firms
Wall Street Journal
Fannie Mae and Freddie Mac “have already quietly transformed” themselves since they were seized by the government during the financial crisis. “The two firms now post billions of dollars in net income each year, aided by a bounceback in the housing market and the general economy. They also brought in more money by increasing the fees they charge lenders to guarantee mortgages. All told, Fannie and Freddie have sent more than $300 billion back to the government.” Last week the Trump administration announced a plan to return the two agencies to the private sector.
But “some regulators worry about their financial strength. Many of the mortgages they buy are made by nonbanks, which are less regulated than their bank counterparts. Many of the nonbank firms have yet to weather a housing downturn.”
Meanwhile, investors holding stock in Fannie and Freddie Friday “notched a win in their years-long challenge to the U.S. sweep of nearly all of the mortgage-finance giants’ profits, a victory in their fight for gains from the companies’ return to profitability.” The Fifth Circuit Court of Appeals in New Orleans “overturned a ruling that supported a government decision in 2012 to sweep all the mortgage-finance giants’ profits to the Treasury Department.” Investors may now pursue their claims at trial.
“Friday’s ruling is significant because investors had previously failed to gain much traction with their court challenges. It also suggests that the legal fight over the companies’ profits could continue for the foreseeable future. At the same time, the judges said that the structure of the companies’ regulator, the Federal Housing Finance Agency, is unconstitutional because its director can only be fired for cause by the president. The court said the remedy is to allow the director to be fired at will by the U.S. president.”
The Trump administration’s plan “raised the goal posts for ending the conservatorships of Fannie Mae and Freddie Mac, but how officials get there is still highly uncertain,” American Banker reports.
It pays to pay
The top four holdings of the best-performing technology stock mutual fund in the first half “were all payments plays:” Visa, Mastercard, PayPal and Worldpay. “The global migration from cash to electronic payment methods has continued, creating a rising-tide environment for a number of payment-related companies,” said Zach Turner, co-manager of the Fidelity Select IT Services fund.
Bad moon rising
CEOs from America’s six biggest banks will tell investors this week “how badly their businesses are being hurt by falling interest rates and an inverted yield curve, setting the scene for a raft of cuts to profit forecasts.” Since they last provided guidance on earnings in July, “most envisaged short-term interest rate cuts, like the one made by the Federal Reserve in July on the back of a slowing economy. Since then, further deceleration and fears over President Donald Trump’s trade wars have triggered widespread anticipation of more aggressive cuts.” The six bank chiefs are scheduled to speak at the Barclays Global Financial Services Conference in New York from Monday to Wednesday.
Do not delete
A former banker at Russia’s VTB “has been charged over deleting his WhatsApp messages in the first case of its kind brought by the U.K’s Financial Conduct Authority.” The banker, Konstantin Vishnyak, pleaded not guilty to one count of destroying documents “that he allegedly knew to be relevant to an investigation” on insider trading. “It is the first time the watchdog has charged an individual with the crime under the Financial Services & Markets Act.” Vishnyak faces a maximum two-year sentence if convicted.
Local banks in Japan are being squeezed by negative interest rates and an aging population, which is giving them “an incentive to gamble on risky property loans or exotic investments overseas.”
“The big question, especially at smaller regional banks, is whether they are really aware of where the risk is for these investments,” said Ken Takamiya, a bank analyst at Nomura.
Black and Hispanic men who applied for small business loans “faced more scrutiny and worse treatment from bank officers than less qualified white men,” a study by the National Community Reinvestment Coalition says. The group sent white, black and Hispanic “mystery shoppers” to 60 Los Angeles area banks. “The testers had nearly identical business profiles and strong credit histories, with black and Hispanic testers possessing slightly better incomes, assets and credit scores than their white counterparts.”
But “in almost every measure, white testers received superior customer service, the study found. Bank representatives asked white prospective borrowers fewer questions about eligibility and provided them more information about loan products. The results demonstrate the challenges minority entrepreneurs face when trying to access additional capital to expand their businesses.”
A Pennsylvania couple has been charged with stealing $120,000 that was accidentally deposited in their account by a BB&T bank teller, which they spent on “an SUV, two four-wheelers and a car trailer,” and other items. Robert and Tiffany Williams were charged with theft and receiving stolen property after they "went dark on the bank" despite their promises to devise a repayment plan.
“The guidance is going to be downward, especially when it comes to the interest rate environment.” — Jeff Harte, an analyst at Sandler O’Neill, on what bank CEOs are expected to say about third quarter earnings at a conference in New York City this week