Banks back away from Venezuela; Downside of going cashless

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Good day for JPM
JPMorgan Chase CFO Marianne Lake “gave a cautious outlook” at the bank’s annual investor day on Tuesday, citing a slowing economy, but shareholders “can find reassurance in the fact that JPMorgan is humming along at an enviable level of profitability,” the Wall Street Journal says. “Its 2018 return on tangible common equity, a key measure of bank performance, was a robust 17% — not only in line with its medium-term target, but also easily the highest among its peers.” But the bank could easily “overearn” that rate “if market conditions are positive,” Lake said. But even if the economy doesn’t cooperate, the bank “has levers it can pull to keep returns high,” the paper said.

Still, everything wasn’t rosy at the conference. JPM president Daniel Pinto warned trading revenue will decline by a “high teens” percentage in this year’s first quarter due to “very tough comparisons” with last year’s strong first quarter and “a slow start in the equity business and overall … lower weaker client activity” so far this year.

Also at the meeting, CEO Jamie Dimon hinted the bank's digital currency may one day be used for retail payments, although the bank later walked back those comments. Earlier this month JPM became the first major American bank to create its own cryptocurrency, called JPM Coin, which was designed to settle client transactions in its wholesale payments business. The bank subsequently said on its website that it has no plans to offer the coin to individuals. Dimon pointed to Square, which "has done things he wishes JPMorgan Chase had done."

American Banker reports on the new loan products it will offer cardholders.

Separately, a federal judge in Manhattan dismissed a wrongful death lawsuit against the bank by the estate of one of its former top brokers, which claimed that he committed suicide after being forced into retirement. U.S. District Judge John Keenan “said it was not reasonably foreseeable that JPMorgan’s treatment of Michael Lorig would cause him to take his life at age 66 on Jan. 22, 2017, after years of what the estate called depression and mental illness.” Lorig was a senior managing director who joined the bank after it bought Bear Stearns in 2008. His estate claimed that JPM should have known about Lorig’s mental health issues.

On second thought ...
Swedbank, the Swedish bank that has been implicated in the Danske Bank money laundering scandal, said it has replaced the outside auditor investigating its possible involvement just five days after hiring the firm. Last week Swedbank appointed EY to run the probe but has subsequently found that the audit firm “is under investigation in Denmark over its role in auditing Danske Bank during the Danish bank’s €200 billion money-laundering scandal in Estonia.” The bank said it has hired Forensic Risk Alliance, an international consulting firm, to conduct the probe.

“We have taken notice of the reports in media, and to avoid any misunderstandings going forward we decided to change the external audit firm,” Swedbank said.

Wall Street Journal

Fear of noncompliance
Tough U.S. sanctions against Venezuela pose “new compliance risks” for American and international banks. “Gradually increasing U.S. measures targeting the government of Venezuela, and the country’s state-owned oil giant in particular, have made banks more reluctant to touch accounts that might relate to Venezuela for fear of sanctions violations.”
The paper says, "Washington has been pushing a broad campaign against the government of Nicolás Maduro, who the Trump administration says is corrupt and illegitimate."

Financial Times

Hidden risks
Many societies may be moving toward going cashless, but “our growing dependence on electronic payments and the digital economy is not without risk,” an op-ed says. “Older people and lower income groups are at risk of financial exclusion. It can put small businesses at risk of losing customers. And as more of us leave cash behind, the potential fallout from cyberattacks and unexpected outages increases.”

Error fallout
Shares of Metro Bank plunged more than 17% on Wednesday following Tuesday’s 16% drop after the U.K. “challenger” bank said the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority planned “to investigate the circumstances and events” behind its recent disclosure of an accounting error that misclassified some business loans. On Tuesday the bank said it would need to raise £350 million to cover the additional capital cost to cover the loans.

Brexit talk
The disparate Brexit contingency plans at U.K. banks, Swedbank’s possible involvement in the Danske Bank scandal, and “some good news for Italy's indebted banks,” featuring special guest Marco Morelli, Monte dei Paschi di Siena’s CEO, are covered in a podcast.

Quotable

“JP Morgan Coin could be internal, could be commercial, it could one day be consumer.” — JPMorgan CEO Jamie Dimon about possible uses for the bank’s recently announced digital token.

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