Cryptocurrencies concern regulators; banks applaud Trump

Receiving Wide Coverage
Ready to fight: Jay Clayton, the chairman of the Securities and Exchange Commission, and J. Christopher Giancarlo, the head of the Commodity Futures Trading Commission, took to the Wall Street Journal’s op-ed page to discuss their concerns about cryptocurrencies and distributed ledger technology (DTL), more commonly known as blockchain.

“History has proved that transparency, investor protection and market integrity are critical to ensuring that innovation continues. But today we are seeing substantial DLT-related market activity that shows little or no regard to our proven regulatory approach. This concerns us,” they write. “Distributed ledger technology may in fact be the next great disruptive and productivity-enhancing economic development. But we will not allow it or any other advancement to disrupt our commitment to fair and sound markets.”

At the same time, “the world’s big financial institutions are wrestling with a cryptocurrency dilemma: whether to stand by and denounce a technology many distrust but also fear — or join those investing in it,” the Financial Times reports. Either way, “it has become impossible for the financial establishment to ignore. The looming threat for today’s financial institutions is that … stock exchanges and clearing houses could be disintermediated, while big global foreign exchange trading houses, such as JPMorgan and Citigroup, could lose out if smaller banks start using blockchain.”

But the money keeps coming in. The Journal reports that investors have poured almost $180 million into the first two exchange-traded funds that invest in blockchain companies in just the past two weeks.

Wall Street Journal
The new black: Shares of “less glamorous” custody banks, including State Street, Northern Trust and Bank of New York Mellon, “are suddenly among the hottest stocks in the financial world,” the paper reports. All three have outperformed both the S&P 500 and KBW Bank indexes over the past year.

“The custody banks are benefiting from a market rally that is lifting assets they manage and fees they charge to provide back-office services to corporate and investment-management clients,” the paper says. “Investors are also reacting to years of cost cuts, the promise of bigger payouts to shareholders and a bet that U.S. regulators may lighten the capital rules imposed on the largest banks.”

Early payoff: It turns out that the traditional brokerage business isn’t dead after all, based on the latest financial results from Morgan Stanley and Merrill Lynch, which “showed strength in fee-based revenue and a plateau in broker defections.” Both firms have undergone major strategic transformation since the financial crisis, including revamping how they recruit and pay their brokers and reinventing them as full-service financial advisers.

“Faced with chastened investors, stricter regulations and increased competition from cheap automated advisers and brokers-turned-independent advisers, these traditional brokerages have been trying to transform themselves into businesses that are more profitable, more attractive to younger investors and have a bigger share of clients’ assets and debt,” the paper said.

Elsewhere
Kudos to Trump: Two of the nation’s most prominent bank CEOs had high praise for President Trump’s economic policies. Interviewed on CNBC from the World Economic Forum in Davos, Switzerland, JPMorgan Chase CEO Jamie Dimon said, “I think it's possible you're going to hit 4% [GDP growth] sometime this year,” he said. “I promise you, we are going to be sitting here in a year and you all will be worrying about inflation and wages going up too high."

Goldman Sachs CEO Lloyd Blankfein, a vocal Hillary Clinton supporter who has been highly critical of Trump, had this to say: “I think the market would be lower [under Clinton]. I'd be dealing with more regulation. I'd say the animal spirits are out there and [more] vital than they would be otherwise."

“We're kind of in a sweet spot, and I like it this way,” he added. “Let me tell you, trading is soft. All our other businesses which correlate to global growth are kind of doing very, very well and I think he's gone out of his way to be very, very supportive of the system."

Quotable
“I'd say I like a lot more stuff than I don't like, and some of the stuff I don't like I really don't like. But I don't want to be hypocritical, either. I've really liked what he's done for the economy.” — Goldman Sachs CEO Lloyd Blankfein on President Trump.