Deutsche mulling ‘radical’ job cuts; Central bank digital currency efforts

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Deutsche difficulties
Deutsche Bank is considering cutting 15,000 to 20,000 jobs, “or more than one in six full-time positions globally," the Wall Street Journal reports. "The cuts being contemplated by senior executives reflect an acceleration of Deutsche Bank’s downsizing and another major pullback from its global ambitions.”

“The internal discussions show Deutsche Bank’s dire straits, buffeted by dismal profit expectations and exasperated investors looking for a reason to believe in the shares,” the Journal says.

“The headcount reductions would be equivalent to roughly half of all investment banking jobs at Deutsche, although it is unclear whether the cuts will also affect the bank’s other divisions,” the Financial Times reports. “It represents about a fifth of Deutsche’s total workforce of about 91,000. Last year, the lender cut 7,000 jobs.”

“Executives hope that the restructuring will be sufficiently radical to overcome the worries among investors, customers and employees that Deutsche Bank lacks a viable plan to overcome its weak finances and bruised reputation,” the New York Times says.

Good times, bad times
Big American banks are promising $136 billion in share buybacks and dividend increases over the next 12 months following their passing of the Federal Reserve’s stress tests. “Investors cheered the news, sending banking sector shares close to 2% higher on Friday, well ahead of the wider U.S. stock market,” the Financial Times says. But "Friday’s rise could not mask the fact that bank shares have badly underperformed the market since the beginning of last year, however, and trade at a big discount to nonbank stocks, suggesting that investors are more concerned about the prospect of declining interest rates and a slowing economy than they are excited about big payouts.”

Indeed, “banks are bracing for a third-straight quarter of declines” in trading revenue in the second quarter. “Stocks in 2019 have rebounded from a December swoon on hopes for continued low interest rates, which benefit the economy — a rally that could in theory help trading desks. But banks say their clients have lingering doubts about the resiliency of the market and aren’t putting on the kinds of big, complex bets that earn bank traders the biggest fees,” the Journal says.

Goldman Sachs, said it would raise its dividend to $1.25, up from 85 cents, its largest increase ever, after being cleared to return $8.8 billion to shareholders over the next year, up from $6.3 billion. “The dividend increase is the latest sign of the bank’s transition as it pushes into Main Street banking and steers away from less predictable businesses like trading.”

Don’t get left behind
Central banks may need to issue their own digital currencies sooner than expected in order to keep up with efforts being made by Facebook and others, the head of the Bank for International Settlements said. “Many central banks are working on it; we are working on it, supporting them,” Agustín Carstens told the FT, adding that the agency supports “the efforts of the world’s central banks in creating digital versions of state currencies.”

One of the biggest beneficiaries of the surge in bitcoin, which tripled in price in the second quarter, was Grayscale Bitcoin Trust, which “provides everyday investors with access to the world’s most popular cryptocurrency.” It jumped 192% for the quarter, “outperforming all funds and other mainstream investments.” It was also the best performer in the first half.

But, bitcoin has failed to lift other boats in the cryptocurrency market as it did back in 2017. “Digital coins like Ethereum, Ripple’s XRP coin and Bitcoin Cash are still trading between 70% and 90% below their record highs. The result is that bitcoin now makes up 62% of the cryptocurrency market’s total value, compared with a third of the market near the height of the last rally.”

The rebound in cryptocurrency prices has “some senior figures in the financial services industry thinking again, wondering whether it was the spike or the crash [in 2018] that was the anomaly. While demand for crypto remains driven by retail investors, particularly in Asia, institutional practitioners are increasingly getting involved, drawn by fat spreads and increasing volumes.”

Wall Street Journal

Storm front coming
The banking industry has “managed to mostly withstand the turbulence” of digital transformations, but that is “due to change soon. Two major forces are driving this shake-up: the dramatic growth of digital payments in China and other Asian countries; and the rise of mobile banking in the West.”

Financial Times

No choice
HSBC, which helped U.S. prosecutors arrest Huawei’s finance director in Canada last December, “has launched a lobbying effort to convince the Chinese government that it is not responsible” for her apprehension as it “tries to distance itself from the diplomatic row over China’s top telecoms equipment maker.” The Huawei executive, Meng Wanzhou, is currently fighting extradition to the U.S. “John Flint, HSBC’s chief executive, and other senior representatives of the bank have told Chinese officials that it had little choice but to co-operate with the investigation.”

It's good to be green
“Banks must develop comprehensive strategies and implementation plans” on environment-related risks, Ben Caldecott, director of the Oxford Sustainable Finance Program, says in an op-ed. If they don’t, “regulators are likely to force this change. But the sector should be responsible and act sooner rather than later. It is in its commercial interests to do so.”

“New products, such as loans that charge lower interest rates to borrowers who meet or outperform sustainability targets, are a powerful incentive and can create new business, lower credit risk and support the real economy’s transition to lower-carbon activity,” he writes. “Banks can also provide retail clients with financial solutions that align them with the need for much smaller environmental footprints. These range from green mortgages and loans for energy efficiency retrofits to helping individual investors to engage with the companies whose shares they own.”

New York Times

Apolitical
Visa CEO Al Kelly discusses how “he works to keep Visa at the center of the global financial system — and out of political disputes.”

“We are in the business of facilitating legal commerce,” he says. “Our job is not to set or interpret, but to follow the law. The minute we don’t, it will become an extraordinarily slippery slope. Our job is not to be dividing the country. Our job is not to lecture people about what to do or what to buy. And the minute you give on guns, then what about soda? What about fur coats? What about birth control pills? What about? What about? What about?”

Quotable

“It might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies.” — Agustín Carstens, general manager of the Bank for International Settlements

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Stock dividends Cryptocurrencies Digital payments Climate change Deutsche Bank HSBC Visa
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