Big funds look to bypass banks; JPM looks to invest in bank tech company

Receiving Wide Coverage ...

Monopoly buster
“With its new digital currency, Libra, Facebook may actually succeed” in doing what no financial technology startup or cryptocurrency has been able to do: busting up the payment system, which “remains one of the last true monopolies of a modern economy,” the Wall Street Journal writes. “Granted, a stateless central bank run by Facebook will alarm some people. But before jumping to conclusions, it’s worth examining Libra’s potential to do good, especially for the world’s poor. The very ubiquity of Facebook may be what enables Libra to become a true alternative to national currencies. Sometimes, it takes a monopolist to beat a monopolist.”

While Facebook “has big plans to remake the financial system with its cryptocurrency-based payments network, … it first it has to get people to use it,” the Journal writes in a separate article. “Facebook has a built-in advantage because of its massive reach; around one-third of the world’s people visit the site monthly. But persuading them to change their habits and adopt a brand-new technology could be a tough slog. Privacy concerns also could hinder adoption of the new currency, though Facebook has said it won’t mingle Libra users’ social and financial data.”

Meanwhile, “the price of bitcoin has soared to its highest level in a year and a half, as a breathless rally in the digital asset evokes memories of the cryptocurrency’s last boom-and-bust cycle.” On Wednesday the cryptocurrency jumped 10% in Asia before climbing another 8% in New York, rising about $13,800.

“Bitcoin’s value has now jumped for eight trading sessions in a row, bringing its overall return for the year to more than 250%. Much of those gains have come in the past eight weeks, with the price of one bitcoin more than doubling since the start of May. Analysts say the bout of enthusiasm for virtual currencies is being stoked by a confluence of factors. Among the most significant is Facebook’s move into the world of crypto. Analysts are optimistic that Libra could help cryptocurrencies generally gain more mainstream acceptance, both as means of payment and as a store of wealth.”

Bully pulpit
President Trump launched one of his most vicious attacks against Federal Reserve Chair Jerome Powell yet, “comparing him unfavorably with European Central Bank President Mario Draghi and expressing broader concerns that Fed policy is hurting the U.S. economy by allowing the dollar to get too strong.”

“We should have Draghi instead of our Fed person,” the president said on the Fox Business Network. “Here’s a guy, nobody ever heard of him before, and now I made him and he wants to show how tough he is? O.K. Let him show how tough he is."

Wall Street Journal

Eliminate the middleman
Five large investors – Fidelity Investments, Capital Group, Wellington Management, T. Rowe Price and Norway’s government fund – that manage more than $7 trillion in assets “are banding together to directly organize a series of meetings with company executives” that poses “a direct threat to the hundreds of millions of dollars in fees banks make each year introducing their investor clients to the executives in whose companies they own stock.”

“The workaround is just the latest way that banks are losing their spots as Wall Street’s indispensable middlemen. They once underwrote loans, stood in between buyers and sellers of securities, and organized meetings between investors and corporate executives—all for hefty fees. Today, companies are increasingly borrowing straight from loan funds, without hiring a bank to underwrite and place the debt.”

Keeping them happy
Credit card banks have a “tough balancing act” to play, “promoting their own branded cards while keeping airline partners happy.” While “banks in recent years have tripped over each other to lure big spenders with ever more generous rewards, … they are trying to stay in the good graces of their airline partners, which have come to rely on the revenue from their card deals with banks.”

For example, “United executives have told JPMorgan they believe the Sapphire Reserve card is competing directly with the airline’s cards and siphoning off customer spending, according to people familiar with the matter. While the deal lasts for another six years, United President Scott Kirby has said publicly that the airline has had tough conversations about the JPMorgan partnership and wants to get more money out of it.”

Financial Times

To the rescue
JPMorgan Chase is in talks to buy a stake in 10x Future Technologies, the banking technology start-up founded by former Barclays CEO Antony Jenkins. “Founded in 2016, 10x develops technology that allows banks to retrieve customer data more quickly, supporting faster, cheaper banking services. A deal with JPMorgan would represent a major vote of confidence in 10x, which only recently had looked to have an uncertain future after losing its largest client, the U.K. bank Virgin Money. The company was designing a new system for Virgin, but the project was abandoned after the bank was taken over.”

Separately, the Central Bank of Ireland fined JPM €1.6 million for “serious” regulatory failings in its Dublin-based fund administration unit.

Full speed ahead
Monzo, the U.K.-based digital-only bank that recently launched in the U.S., will continue to lose money “as it embarks on an expensive advertising campaign to sustain its turbocharged customer growth.”

“We can choose to do less stuff, expand less internationally and hire fewer people — those actions would adjust the trajectory towards higher profitability much faster but I think it would damage the long-term value of the company,” CEO Tom Blomfield told the FT.

Quotable
“There was this idea that brokers had magical access to the C-suite. Asset managers are starting to realize, ‘I can pick up the telephone as well.’” — Octavio Marenzi of Opimas, a consulting firm to banks, on the recent trend of asset managers bypassing banks and dealing directly with corporate clients.