EU charges 8 banks with price fixing; FBI, police foil bank moles

Receiving Wide Coverage ...

Mastercard soars
Despite a $757 million charge for litigation costs, Mastercard said its fourth quarter earnings nearly quadrupled to $899 million, compared to $227 million a year earlier, as revenue rose 15% and charge volume rose 9.4%. The company said the provision was tied to a fine from the European Commission of $654 million and settlements with European merchants of $103 million for failing to accept cards not issued in the region. Wall Street Journal, Financial Times

Price fixing
The European Commission accused eight unnamed banks of operating as a cartel in the €7 trillion eurozone government bond market from 2007 to 2012, “marking another escalation in the EU’s drive to punish financial institutions for rigging financial markets.” According to the Financial Times, “the price rigging was not bank-wide but involved specific traders at various lenders who in some cases moved between institutions during the period.” Using mainly online chat rooms, the traders “exchanged commercially sensitive information and coordinated on trading strategies” to engage in “a collusive scheme that aimed at distorting competition,” the EU said. Financial Times, New York Times

Added pressure
Metro Bank, the U.K. “challenger” bank created by U.S. banker Vernon Hill in 2010, is facing “growing pressure” from regulators and shareholders over its handling of an accounting mistake that has led to its stock price falling by more than half over the last week. On Thursday “industry figures and regulatory experts were suggesting that senior executives would be forced to resign amid fears they may have misled the market” after it was disclosed that the Bank of England’s Prudential Regulation Authority – and not Metro itself – discovered the accounting error, which led the bank to misclassify “large numbers” of commercial loans that made them appear to be less risky. Financial Times here and here

The bank’s shares fell a 13% on Thursday to an all-time low.

Deutsche disappoints
Deutsche Bank reported its first annual profit since 2014 but failed to meet expectations as it reported a larger than expected fourth quarter loss. The bank “vowed to stay disciplined on cost-cutting efforts as [it] struggles to quell persistent speculation about its future.” Its stock was down sharply in European trading. Wall Street Journal, Financial Times

Wall Street Journal

Look to the future
Investors should look past PayPal’s “somewhat disappointing results” for the fourth quarter and look ahead to the future, “now that the payment company’s own growth drivers finally are starting to kick in,” the Journal’s Heard on the Street column advises. The payment company’s results were dragged down by slowing business at former parent eBay, which now accounts for just 10% of PayPal’s volume. “What matters far more for PayPal’s future are rapidly growing businesses like Venmo, its youth-oriented payments service, and Braintree, its mobile-payments-processing platform. Venmo’s total payment volume soared 80% from a year earlier in the latest quarter. More important, the company is making progress turning Venmo into a genuine moneymaker,” with the service “now on track to generate around $200 million of revenue a year, up from basically nothing a year ago.”

Financial Times

Probed
German financial regulators and criminal prosecutors have launched a preliminary investigation into potential market manipulation at Wirecard, a big German payments company, following an FT report on Wednesday that a “senior Wirecard executive based in Singapore had been suspected of using forged and backdated contracts in a string of suspicious transactions.” The company called the FT report “inaccurate, misleading and defamatory.”

Moving out
WorldFirst, the U.K.-based money transfer company that is in talks to be purchased by China’s Ant Financial, has “abruptly” closed its American operation in order to avoid having the deal blocked by U.S. regulators over national security concerns. The deal would have marked “the biggest expansion into western markets by China’s leading mobile payments provider.”

Elsewhere

Groundhog Day foiled
Local police and the FBI are investigating what may have been an attempt to break into a JPMorgan Chase branch in Pembroke Pines, Florida, through a 150-foot tunnel that was dug “from woods, beneath a two-lane road and straight toward the Chase Bank branch.” The tunnel was discovered by public works employees who were called to fix a possible sinkhole in a road near the bank following recent heavy rains in the area. In addition to the tunnel, police found an orange power cord that stretched toward the woods, where “a gas-powered generator, a winch and a wagon used to haul dirt and rocks” were found.

Cain for the Fed?
President Trump is considering former pizza chain executive and presidential candidate Herman Cain to join the Federal Reserve Board. Cain, the former CEO of Godfather's Pizza and a candidate for the Republican presidential nomination in 2012, met with the president at the White House on Wednesday. Cain served as a director of the Kansas City Fed between 1989 and 1996.

Quotable

“It was going towards the bank for sure.”
— FBI Special Agent Michael Leverock, commenting on a tunnel that was discovered near a JPMorgan Chase branch in Pembroke Pines, Florida.