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Earnings: Bank of America said it earned $2.37 billion in the fourth quarter, after a $2.9 billion tax-related charge. Goldman Sachs reported a $1.93 billion loss for the fourth quarter, after a $4.4 billion charge for income tax expense. Excluding the charge, which wiped out most of the company’s earnings for the full year, profit beat analysts’ estimates.
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Glancing blow: Citigroup’s $22 billion tax-related write-down in the fourth quarter is actually “cause for celebration,” the Heard on the Street column says, noting, the bank’s stock price rose on the news. “As for most banks, the new tax law will be strongly beneficial to Citigroup in the long run,” it says. “Meanwhile the one-time write-down would do only negligible damage to its balance-sheet strength and may even have some salutary effects on the bank’s relations with its investors.” Indeed, the bank said it is revising the financial targets it set just six months ago. Financial Times, New York Times, Washington Post, American Banker
But Citi is hardly the only bank that will benefit from tax reform, the New York Times reports. “The $1.5 trillion tax overhaul signed into law late last year provided deep and lasting tax cuts to all types of businesses,” it notes, “but financial institutions are among the biggest winners so far, reaping benefits from a lower corporate rate and more preferable tax treatment for so-called pass-through companies, which include many small banks.”
Banks stand to gain even more as the Senate looks to pass legislation that would loosen regulations on smaller institutions, including raising the threshold to $250 billion for banks to be considered “systemically important financial institutions.” That would leave less than 10 banks subject to stricter oversight, which includes annual stress tests by the Federal Reserve.
“But unlike the $1.5 trillion tax overhaul, which passed along party lines, the effort to loosen the post-crisis rules is somewhat bipartisan,” the Times reports. “A group of Senate Democrats has joined Republicans to support legislation that would mark the first major revision of the 2010 Dodd-Frank Act.”
A separate bill would force banks to end their correspondent relationships with foreign banks that refuse to provide evidence for U.S. investigators in money-laundering investigations.
Down, down, down: The price of bitcoin plunged as much as 25% on Tuesday, falling below $11,000 for the first time since early last month. The price decline followed attempts by several governments, including China and South Korea, to tighten control over cryptocurrency trading and mining. Wall Street Journal, Financial Times
North Korea may have been behind a malware attack on cryptocurrency investors in South Korea that began last fall and may still be going on. “The allegation comes amid signs that Pyongyang has been mining and hacking bitcoin as it seeks new revenue sources to help fund its weapons program in the face of tightening sanctions,” the Journal says.
Wall Street Journal
Another look: Mick Mulvaney, the acting head of the Consumer Financial Protection Bureau, plans to reconsider federal restrictions on payday lenders that took effect on Tuesday, “a step that could lead to the easing of a rule opposed by the industry and some Republicans.” Changing the rule, which requires compliance by August 2019, would be “the most significant in the Trump administration’s effort to overhaul the CFPB,” the paper says.
Fight brewing: The onset of “open banking” rules in Europe this month is likely to encourage nonbank payment providers, such as Google and Apple, to seek permission to access customer financial data and enable them to start providing banking services to consumers themselves. “Given the size of the market and the depth of European consumers’ pockets, this could be big tech’s next big opportunity,” the paper says. “But banks won’t cave in without a fight.”
Not giving up: The recent rejection by U.S. regulators of Ant Financial’s proposed $1.2 billion acquisition of MoneyGram International “does not signal the end of the Alibaba-affiliated payments group’s U.S. financial ambitions,” says Henny Sender, the paper’s chief correspondent for international finance.
“On one level, the scuppered deal suggests that Chinese companies, whether state-owned or otherwise, will have an even harder time winning approval for U.S. acquisitions,” she writes. “But Ant Financial’s attempted U.S. play also shows how much technology is undermining the dominance of traditional global titans, especially in the financial sphere. It is especially noteworthy that many of the upstart challengers to banks and other legacy companies increasingly either have a Chinese face or Chinese capital behind them. That, in turn, underscores how some Chinese players have leapfrogged into prominence across the world.”
“The macro environment is as positive as we’ve seen in many years. Tax reform could change the sentiment among those making investment decisions.” — Citigroup CEO Michael Corbat.