Citi in laggard's role; EU bank CEOs have less skin in the game

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Wall Street Journal

Too little, too late
“The real legacy of the financial crisis” could be that home ownership is out of reach of many younger Americans. “Economists, policy makers and mortgage lenders expect the trend to extend to younger generations.” While they might “want to buy homes, [they] are finding themselves priced out of the market.”

Foreign invader
Rakuten, the Japanese online retailer that bought Ebates in 2014, has applied to open an industrial loan company in Utah that would enable it to offer financial services to its 13 million regular customers in the U.S. “Bankers immediately raised concerns about Rakuten’s bank plans, asking regulators to conduct a thorough review,” while its application “could face political headwinds, given its foreign ownership and technology focus.”

“Most traditional banks in the U.S. face restrictions and oversight from the Federal Reserve that extend to their owners, limiting the number of commercial firms opening up banks,” the Journal noted. But the charter Rakuten is applying for “permits firms outside of the financial services industry to operate banks without being subject to Fed oversight.”

Big Brother is watching
The Internal Revenue Service is sending letters to more than 10,000 cryptocurrency holders, warning them they may be subject to capital gains and other taxes. “Taxpayers should take these letters very seriously,” IRS Commissioner Chuck Rettig said. “The IRS is expanding efforts involving virtual currency.”

“The IRS letters come as bitcoin, the world’s most popular cryptocurrency, has ridden a new wave of optimism in recent months. In mid-July, bitcoin topped $12,000, more than three times its value at the end of 2018. At the same time, use by drug dealers and other nefarious actors has marred its reputation. The IRS has expressed worries about the ability of digital currencies to promote tax evasion.”

Financial Times

More work to do
“Despite a recovery in its share price this year from a brutal 2018, and better performance in key businesses, the yawning gap in long-term share performance” between Citigroup and two of its main rivals, JPMorgan Chase and Bank of America, “is a stark reminder of how much remains to be done at Citigroup,” the FT reports. “A dissident group of large investors, analysts and even some inside the bank say that slow-and-steady improvement is not enough, and that [CEO Michael] Corbat and Citi’s board need to be bolder in changing the bank’s strategic direction.”

The great divide
There is “a stark divide” between the CEOs of America’s largest banks and their peers in Europe when it comes to owning their own bank’s stock. “On average, the bosses of the top five U.S. global banks owned $222 million of stock as at the end of last year, more than 15 times the average of the top half-dozen global banks in Europe.” Why such a gap?

Not over yet
Barclays, Citigroup, Royal Bank of Scotland, JPMorgan Chase and MUFG face “billions” in potential damages in a class-action civil lawsuit in London that charges that the banks “manipulated foreign exchange markets and caused investors significant losses on currency trades. The civil case comes after European competition authorities” fined the banks more than €1 billion in May for manipulating currency rates. The civil suit “is one of the few large court cases to have been brought under the Consumer Rights Act 2015 that allows U.S.-style, class-action lawsuits to be pursued if there have been breaches of competition law.”

Overlooked
Deutsche Bank is investigating the possibility that it failed to deactivate the company email accounts of about 50 of its traders weeks after they were let go in the first wave of layoffs when the bank closed its global equities business earlier this month. “The failure comes at a sensitive time for the German lender, which faces a steep task to convince investors it can execute one of the most radical bank restructurings since the financial crisis after multiple failed attempts at an overhaul in recent years. Deutsche’s global head of compliance surveillance, Jeremy Kirk, is leading the investigation, which is examining whether price-sensitive data were accessed or if there had been any collusion between current staff and those made redundant.”

Green light
“In a landmark judgment likely to have significant implications for the future of the Swiss banking industry,” Switzerland’s highest court has given the green light to allow UBS to transfer “sensitive information on tens of thousands of clients to tax authorities in Paris,” who are investigating possible tax evasion by UBS customers. UBS had won a judgement in 2016 by a lower Swiss court that blocked the transfer before this ruling. “Information on the 40,000, mostly high net worth, UBS banking clients, who are resident, or previously resident, in France will now be sent to French investigators pending finalization of the judgment.”

Quotable

“Rakuten is a major technology firm engaged primarily in nonfinancial activities. Allowing Rakuten to participate in banking activities would raise important questions about the free flow of credit, consumer privacy and possible conflicts of interest.” — American Bankers Association chief Rob Nichols, commenting on the Japanese online retailer’s plan to open an industrial loan company in the U.S.

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