CECL delay won’t end opposition; Positive side of BofA’s results

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Not as bad as it seems

Despite reporting a 19% drop in third quarter profit — largely the result of a $2.1 billion charge related to the termination of its payment-processing partnership with First Data — Bank of America “posted gains in its consumer, wealth and commercial businesses,” although profit in its securities sales and trading unit fell, the Wall Street Journal reports.

“Bank of America has the eye of the tiger — they see what they want and they go after it,” Wells Fargo banking analyst Mike Mayo told the Financial Times, commenting on BofA’s investment banking unit. “We heard adjectives such as ‘bumbling’ used a few years ago but this is best in class performance.”

“What explains some of the outperformance may be Bank of America’s relatively bigger focus on the U.S., and within the U.S. its investment in banking smaller and midsize companies,” the Journal comments. “Many big lenders have talked about efforts to spread bankers across the country, but Bank of America appears to be the biggest beneficiary so far, at least in terms of loan growth. It also helps to not be as big in what are the more challenging parts of business lending at the moment. Bank of America has a relatively smaller book in commercial real-estate lending than JPMorgan Chase and Wells Fargo. Lending in that business grew less than 2% across the three banks.

Digital payments roundup

The “bumpy rollout” of Facebook’s Libra digital currency project “is a big setback to [the company’s] efforts to reduce its near-total reliance on targeted advertising. It is also a warning to technology giants that are expanding into financial services,” such as Apple, Amazon.com and Google, each of which is working on its own payments project, the Journal says.

Federal Reserve Gov. Lael Brainard said in a speech Wednesday, "it should be no surprise that Facebook's Libra is attracting a high level of scrutiny from lawmakers and authorities."

Brainard said Libra “would have to make promises in three broad areas: anti-money laundering, consumer protection and the types of financial transaction being undertaken by each partner.”

Bruno Le Maire, France’s economy and finance minister, writes in the FT that Libra “would mean a private company controlling a common good and taking over tasks normally discharged by states. This is unacceptable for both economic and political reasons.”

Meanwhile, PayPal, which recently received permission to enter the Chinese payments market, is looking for a niche outside the realm of Alipay and Tencent, which have a near duopoly on the business with respective market shares of 53.8% and 39.9%. Rather than try to go up against those two giants, U.S.-based PayPal “sees a valuable opportunity in Chinese shoppers buying from overseas, where few merchants are set up to take Alipay or WeChat Pay.”

In Germany, embattled Wirecard is “facing calls from analysts to provide detailed information on its accounting after the German fintech group sought to dismiss a Financial Times report about suspect bookkeeping.” After dropping 13% on Tuesday, the company’s stock price ended little changed on Wednesday after Wirecard “issued a statement that rejected allegations of impropriety, provided some details of business conducted through Dubai, and said that conclusions drawn by the FT regarding the documents were ‘not correct.’”

In India, Paytm, the country’s largest mobile payments company, “is seeking to raise $2 billion from investors including Ant Financial and SoftBank to better compete with rivals Amazon and Walmart.” The company is “racing to keep its share of India’s digital payments and ecommerce markets, a battleground for tech groups who see the country of 1.3 billion people as an important source of growth. Paytm and Walmart’s PhonePe currently dominate the space, but Google Pay has gained traction and Facebook’s WhatsApp has been preparing to launch its own payments service.”

Wall Street Journal

Not satisfied

The Financial Accounting Standards Board extended the implementation deadline for its current expected credit loss, or CECL, accounting standard, for all but the largest banks, until 2023. “Large public banks, which the FASB defines as all SEC-filing lenders minus small business entities, were unaffected and will have the same deadline of the fiscal year after Dec. 15, 2019.”

“Delaying CECL for some lenders likely won’t end the banking industry’s criticisms of the standard. Banks have argued the need to book losses up front would discourage lending. Lawmakers in the U.S. Senate and the House of Representatives introduced bills in recent months to delay CECL and conduct a study on the standard’s potential impact.”

Financial Times

Meaningful?

Alison Rose’s appointment as CEO of Royal Bank of Scotland indicates the banking sector “is finally diversifying to the point where we might be able to tell whether adding women to top management and boards of directors makes any difference.”

Quotable

“We remain deeply disappointed that FASB has yet to take the logical next step of pausing implementation for all companies until a rigorous quantitative impact study can be completed to assess its full effects.” — American Bankers Association CEO Rob Nichols, commenting on the Financial Accounting Standards Board’s decision to delay implementation of its current expected credit losses, or CECL, accounting standard, for most banks, but not the very largest public ones

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