BofA may go solo on payments processing; Trust banks’ slide

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Shark repellent
Democrat presidential candidate Bernie Sanders introduced the “Loan Shark Prevention Act” in the Senate on Thursday, which seeks to cap interest rates on credit cards and other consumer loans at 15%. The bill, which “has little chance of clearing the Republican-controlled Senate and will face rigorous opposition from financial interests,” would also allow the U.S. Postal Service to get into the banking business. Rep. Alexandria Ocasio-Cortez, D-N.Y., introduced similar legislation in the House.

“There is no reason a person should pay more than 15% interest in the United States,” Ocasio-Cortez said on Twitter. “It’s a debt trap for working people + it has to end.”

Wall Street Journal

Time to fly?
Bank of America Corp. is considering ending its “huge” payment-processing joint venture with First Data in favor of launching its own business. “Leaving the joint-venture would give the bank more control of its business that focuses on moving money for merchants. The decade-old partnership has been particularly lucrative for First Data,” which owns the majority stake in the venture and accounts for more than 10% of its revenue.

Come back
The Federal Housing Administration is trying to entice banks to return to its home mortgage program by clarifying its rules and compliance standards. After paying billions of dollars in fines for allegedly misusing the program during the financial crisis, banks largely abandoned FHA lending, leaving the field to nonbank lenders. “Now, the FHA is aiming to assure banks, as well as the lenders currently in its program, that the government is taking a more black-and-white approach to outlining and enforcing its requirements. The proposal includes a set of standards for what constitutes a defective mortgage and how it can be remedied. It also presents streamlined certifications that lenders have to make annually for each loan to be part of the program.”

Banks welcomed the proposal “but some observers say it remains to be seen if the changes will lure mortgage lenders back to the FHA,” American Banker reports.

Buyer beware
Investors are eschewing European bank stocks but are gobbling up their bonds. However, they need to exercise caution in buying a hybrid bond that turns into equity, the paper advises. While most buyers are sophisticated investors, many of the securities' quirks are not well understood.

AML credit warning
Poor anti-money-laundering and financial crimes controls “are more likely to affect a bank’s credit rating than almost any other nonfinancial factor,” Fitch Group said in a report released Thursday. “Financial crimes compliance lapses can be serious, material and can drive credit ratings,” said Monsur Hussain, senior director in Fitch’s financial institutions group, who noted that “regulators across the globe are cracking down on banks with weak controls.”

Financial Times

Under pressure
The big American trust banks like State Street and Bank of New York Mellon used to be a "safe bet" based on their fee income. Not anymore. “Their core business of global custody — executing, settling and clearing trades, custody of securities and so on — is coming under pressure as customers seek lower fees for services and higher yields on deposits, and the more diversified JPMorgan Chase gains market share.”

"The underlying problem for the trust banks," the paper says, "is that their customers are struggling to deal with the rise of low-fee passive investment strategies."

Tomorrow, the world ...
Three of China’s biggest technology companies — Tencent, Alibaba and Xiaomi — and Ping An, the world’s largest insurance company, were granted banking licenses by the Hong Kong Monetary Authority, allowing them to launch digital banks in Hong Kong, the first step “in a long-awaited assault on the financial sector that threatens local players such as HSBC and Standard Chartered and heralds future challenges in London and New York.” James Lloyd, head of fintech at EY in Hong Kong, said the territory was likely to be a “proving ground. It’s not hard to imagine that several of these players have local, regional and even global ambitions.”

Into the fire
Chris Vogelzang, the former head of ABN Amro’s retail and private banking units, has been named Danske Bank’s CEO, “ending a seven-month search to find an outsider to lead it out of a €200 billion money-laundering scandal. He faces a huge number of challenges from dealing with U.S. criminal investigators and regulators probing a money-laundering scandal to regaining the trust of customers and investors after the affair caused its shares to halve last year.”

Quotable

“It’s odd to me that somebody that has a banking relationship for an auto loan or a credit card and wants to talk about FHA loans, they have to go elsewhere.” — FHA Commissioner Brian Montgomery, introducing new mortgage guidelines to get banks to start making loans through the program again

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