Big six banks roll; Trump again rails against rate hikes

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Good news all around
Goldman Sachs and Morgan Stanley’s stellar third quarter earnings reports Tuesday “wrapped up a week of big-bank reports that reflect the strength of the U.S. economy in shrugging off geopolitical turmoil. After Main Street rivals [JPMorgan Chase, Bank of America, Wells Fargo and Citigroup] reported strong earnings on the backs of their consumer businesses, Goldman and Morgan Stanley showed that the current economic and market climate also works for firms with deep Wall Street DNA. All six of the largest U.S. banks reported higher profits from a year ago.”

For Goldman and Morgan Stanley, “the near-term outlook for both is for continued strong profits,” the Wall Street Journal says. “Longer term, as investors adjust their portfolios to a rising rate environment, there is plenty more business to come for Wall Street trading houses.”

Yet the New York Times says Goldman could stand to get a little leaner. While the average Goldman employee brings in around $1 million of revenue a year, about 40% higher than the average Morgan Stanley worker, Goldman earns as much after compensation as it did in 2012. While Morgan Stanley earnings after compensation has more than doubled in that period, it still trails Goldman, the paper says.

Goldman said it will limit growth in its new consumer lending operation if it sees signs of deteriorating credit quality. “If, in fact, the market and the environment is not hospitable to us, we will watch it carefully, but not grow against the gale,” the bank’s new chief financial officer Stephen Scherr said. However, he added, “We don’t see that wind yet so we’ll continue to grow.”

Wall Street Journal

Trump won't let it go
President Trump went on another rampage against the Federal Reserve on Tuesday, calling the central bank “my biggest threat.”

“It’s independent so I don’t speak to him, but I’m not happy with what he’s doing, because it’s going too fast,” the president told the Fox Business Network, referring to Fed Chairman Jerome Powell and the Fed’s recent interest rate increases.

President Trump’s continued criticism of the Fed could “complicate a series of already challenging decisions facing the central bank. If officials on the rate-setting Federal Open Market Committee believe their credibility with markets would suffer if they are viewed as being swayed by such pressure, this could swing them in favor of raising rates. On the other hand, if sustained attacks result in tarnishing the Fed’s credibility, and hence effectiveness, that could make officials more reluctant to lift rates higher if the data send mixed signals.”

The Fed’s newest voting member, Mary Daly, told an audience at Wellesley College in Massachusetts that the central bank’s “slow and steady pace of rate rises is appropriate.” However, in her first public comments since being named president of the San Francisco Fed, she declined to say how she plans to vote at the Fed’s next policy meetings. “I’m not going to give you my vote.”

Financial Times

On to Paris
Wells Fargo has applied for an investment banking license in France, “the latest boost for Paris as it looks to become Europe’s preeminent banking center after Brexit. The bank’s new unit, Wells Fargo Securities Europe, plans to “offer a range of capital markets and investment banking services to its European and international customers.”

Settled
Despite disputing the charges, Nomura agreed to pay $480 million to settle U.S. Justice Department civil claims that it engaged in “fraudulent conduct” in selling toxic residential mortgage-backed securities that “caused substantial harm to investors and contributed to the financial crisis of 2008.” Nomura said it agreed to the settlement because it was in its “best interests to conclude this matter and avoid protracted and expensive litigation concerning transactions and practices that occurred ten or more years ago.”

Find someone else
Denmark’s financial regulator has rejected Danske Bank’s choice to replace Thomas Borgen as CEO, “a rare and embarrassing intervention for the lender reeling from a €200 billion money laundering scandal.” The Danish Financial Supervisory Authority said the bank’s choice of Jacob Aarup-Andersen, the head of its wealth management unit and former chief financial officer, didn’t have enough experience to take the top job.

New York Times

No happy medium
In an op-ed titled "Why It's So Hard to Punish Companies for Data Breaches," Josephine Wolff, an assistant professor at the Rochester Institute of Technology, writes: "We are caught between two extremes: a weak regulatory system in the United States that refuses to so much as investigate the Equifax breach and a fine-based scheme in Europe that is so harsh that regulators will never be able to impose the maximum allowable penalties. Neither of these systems comes close to striking the right balance of financial penalties mixed with corrective security measures. And until they do, companies will continue to escape serious consequences for their breaches."

Quotable

“With Brexit on the horizon, Wells Fargo is committed to providing a transition, which is as seamless as possible, for its markets and investment banking customers within the European Union and European Economic Area.” — Alicia Reyes, head of Wells Fargo Securities in Europe, Middle East and Africa.

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