Deposit rates may have peaked; Commercial credit's deteriorating quality

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Wall Street Journal

Reversal of fortune
“An end could be at hand for the somewhat brief period” when banks raised interest rates on deposits, the result of both Federal Reserve monetary policy and falling bank profits. “Investors increasingly think the Fed is on course to cut interest rates at least once this year. That makes it likely banks could start to reverse course on deposit rates, which while still low by historical standards have climbed over the past two years. Adding to the possibility deposit rates will start to decline, especially if the Fed cuts rates: Bank profits are likely to come under pressure from an inversion of the yield curve.”

“Growth in payouts to savers has already begun to stall in some deposit categories,” while the average rate on a five-year CD fell in May.

Don’t know much about money
Ivy League schools, including Harvard, have started to teach basic financial life skills, “thanks in part to rising debt levels for young Americans and growing anxiety about their economic futures. The Ivys are part of a growing trend to teach students about money. In the last decade, community colleges, public schools and state universities have started offering personal-finance programs to meet student demand.”

Financial Times

Time to buy
JPMorgan Chase agreed to pay more than $500 million to buy InstaMed, a healthcare payments and billing processor, “the bank’s biggest acquisition since the height of the financial crisis,” when it bought Washington Mutual. “The purchase follows a resurgence of dealmaking by the likes of Goldman Sachs, Morgan Stanley and BB&T,” the paper says. “The deal will bolster the bank’s payments division and push it into what it said was one of the fastest growing areas of the business of moving money throughout the financial system.”

New design
Metro Bank said it will stop using the architectural firm owned by chairman Vernon Hill’s wife, “bowing to pressure after several major proxy advisers and investors including the U.K.’s largest fund group criticized it over conflicts of interest.” The bank has paid more than £20 million over the past nine years to InterArch for design work at its branches but until now “has consistently defended the arrangement, which it says was reviewed annually by the bank’s audit committee using independent benchmarks.” The deal will be phased out over the next 18 months. American Banker reports, the "bank sold $479 million of new stock and issued fresh details about its turnaround efforts."

A modest proposal?
Goldman Sachs buying Deutsche Bank? The paper is serious. Goldman “wants growth in transaction banking and a German deal could help achieve that,” the paper says.

Commercial credit problems
Credit quality in commercial lending at the largest American banks “is deteriorating for the first time in nearly three years, leaving investors to wonder whether there is worse to come should the ebullient economy slow. Non-performing loans at the 10 largest commercial lenders rose 20% in the first quarter,” the paper reports. “The level of sour loans remains historically low relative to banks’ balance sheets. But the sudden increase in problem credit is raising concerns, given low interest rates and strong economic growth.”

New York Times

Looking the other way
Former anti-money laundering specialists at Deutsche Bank say their superiors ignored their recommendations that multiple transactions involving Donald Trump and his son-in-law, Jared Kushner, should have been reported to the Treasury Department. “The transactions, some of which involved Mr. Trump’s now-defunct foundation, set off alerts in a computer system designed to detect illicit activity. But executives at Deutsche Bank, which has lent billions of dollars to the Trump and Kushner companies, rejected their employees’ advice. The reports were never filed with the government.”

“The decision not to report the Trump and Kushner transactions reflected the bank’s generally lax approach to money laundering laws,” the former employees said, “part of a pattern of the bank’s executives rejecting valid reports to protect relationships with lucrative clients.”

Quotable

“You present them with everything, and you give them a recommendation, and nothing happens. It’s the D.B. way. They are prone to discounting everything.” — Tammy McFadden, a former Deutsche Bank anti-money laundering specialist, who says bank executives ignored recommendations to report some transactions by Donald Trump and his son-in-law as suspicious

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