Citi opens bank earnings season; SEC ponders authority over Libra

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Citi earnings
Citigroup's income was up 7% in the second quarter, compared to the same period a year ago, while profit was $4.8 billion, up from $4.49 billion a year ago. Per-share earnings of $1.95, beat the $1.81 analysts had predicted.

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Earnings season begins
“Investors will be closely watching for signs of how much the Federal Reserve’s change in rate policy could hurt the banking business” when the big banks report second quarter earnings this week, beginning with Citigroup on Monday, the Wall Street Journal reports.

“Rising interest rates have boosted bank earnings for several years, but those days are over. The question is how much margins could fall. Another driver of profit narrowing for banks is the increasingly small difference between long- and short-term interest rates.”

Goldman Sachs, JPMorgan Chase and Wells Fargo report earnings on Tuesday, followed by Bank of America on Wednesday and Morgan Stanley on Thursday.

“JPMorgan Kremlinologists” will be “watching for more than just the usual guidance on dealing with low interest rates” when it reports Tuesday. That’s because it will mark the earnings debut as CFO of Jenn Piepszak, a possible contender to replace CEO Jamie Dimon.

Wall Street Journal

Covering all the angles
The Securities and Exchange Commission is looking into whether it has the authority to regulate Facebook’s planned cryptocurrency, “a development that could further complicate a project that faces criticism from President Trump and lawmakers.” The agency is “looking at whether Libra’s structure effectively makes it an exchange-traded fund,” in which case “Facebook would need the regulator’s approval to launch the project.” Facebook executive David Marcus is scheduled to testify before a Senate committee on Tuesday.

Financial Times

Deutsche Bank has agreed to pay €175 million to settle a lawsuit from a Dutch housing association that sued the bank for €840 million, claiming it bribed the association’s treasurer “with cash and lavish perks into buying ruinous” interest rate derivatives that triggered huge margin calls in the 2011 Eurozone crisis.

Separately, one of the elements of Deutsche Bank’s huge restructuring plan has gotten “relatively little attention:” the bank was given a “regulatory dispensation” to lower its equity capital ratio temporarily. “This was crucial. It gives the bank the chance to implement its overhaul without recourse to a fresh capital raising at the current ultra-low stock market valuation.”

But the bank’s European rivals are unlikely to get similar treatment despite their lobbying for it. “The unfortunate news for European banks is that no matter how pressured they feel, regulators are likely to be deaf to their lobbying. This is not the time for capital buffers to be shrunk, given that booming markets are more likely to turn down than grow much further.”

Eastward, ho!
Paytm, India’s largest mobile payments app, has attracted eight million customers in Japan, “giving it a foothold in a huge potential market as it fends off foreign rivals at home.”

“In Japan we have incredible traction,” said Vijay Shekhar Sharma, Paytm’s founder. The company operates in that country through PayPay, a joint venture between Paytm, SoftBank and Yahoo Japan.

Building the team
Revolut, the U.K. online-only bank that recently launched in the U.S., is close to naming Martin Gilbert as its chairman “as the four-year-old digital bank aims to strengthen governance and win over investors ahead of an upcoming fundraising.” Gilbert, the former co-CEO of Standard Life Aberdeen, “has been informally advising Revolut’s chief executive for several months, and two people familiar with the situation said his appointment to the board is expected to be announced in the next few weeks.” Revolut is also expected to add former Goldman Sachs executive Michael Sherwood to its board and is recruited former HSBC banker Richard Davies to be chief operating officer.


Operation repo
The Federal Reserve will begin testing a “standing fixed-rate repurchase agreement facility” as early as next year to “serve as a backstop against sharp spikes in interest rates in money markets,” Deutsche Bank strategist Steven Zeng predicts. The Fed would use the repo tool to lend to big banks using Treasuries and other securities as collateral, he said.


“They don’t seem to have thought through either the mechanics or the regulatory implications of how the money will flow from users, wallets and developers into and out of the trust. To the extent they have, it raises questions like the ones the SEC is looking into.” — Jonah Crane, a former senior Treasury Department official and current advisor to fintech companies on regulatory compliance, on Facebook’s proposed Libra cryptocurrency

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