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Fed extends payout restrictions on big banks; Barclays sets CEO succession race

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Capital conservation

The Federal Reserve extended its ban on dividend increases and share buybacks by the biggest U.S. banks for another three months, “citing the need to conserve capital during the coronavirus-induced downturn,” the Wall Street Journal reported. “The restrictions, imposed for the third quarter, were due to expire Wednesday.” They apply to 33 banks with more than $100 billion in assets until the end of the year.

The action is intended to “ensure that large banks maintain a high level of capital resilience,” the Fed said. “The capital positions of large banks have remained strong during the third quarter while such restrictions were in place.”

The move “dashes hopes that more profitable lenders would be able to boost returns to their shareholders,” the Financial Times said.

The action “mirrors one the central bank took in June after conducting its annual stress tests,” American Banker’s Hannah Lang reports.

Shut down

The Monetary Authority of Singapore, the country’s central bank, “ordered Wirecard to shut its local payment network and return customer funds, the latest step in the dismantling of the former fintech star,” the Journal reported. “The monetary authority acted after Wirecard said it was unable to provide payment processing services to a significant number of merchants.”

“Wirecard’s local Singapore business was relatively small, but the city-state was a major hub for third-party businesses that accounted for most of Wirecard’s reported group revenue and all of its reported profits in recent years.”

The move by Singapore is “the most dramatic regulatory intervention in the German payment group’s remaining operations since its collapse in June,” the FT said. “Wirecard services are widely used in Singapore, where cafés, bars and restaurants across the island operate the company’s payment terminals.”

Meanwhile, Ernst & Young, Wirecard’s auditor, “faced a mounting backlash from investors and German politicians across the political spectrum after it emerged that one of the accountancy firm’s own employees flagged potential fraud at Wirecard four years before the company collapsed,” the FT reported.

“In a worst-case scenario, EY could face its Arthur Andersen moment,” said German MP Fabio De Masi, referring to the defunct auditor of Enron, which “collapsed after the energy group was revealed to be a fraud nearly two decades ago.”

Wall Street Journal

Tightening up

Boston Fed President Eric Rosengren warned that “the potential for losses on business debt and commercial real estate [could] accelerate tighter lending standards from small and medium-size banks.”

“It hasn’t shown up in the statistics yet, but it’s just a matter of time until [loan] forbearance has to end. And many of those loans are going to become nonperforming loans,” he told the Journal. “The problem to the banking sector is not just when banks fail, though that certainly is a problem. It’s when banks become concerned enough about their capital that they tighten up on credit standards, and they have already done that.”

Hello, Dave

Jonathan Mildenhall, the former marketing chief at Airbnb, has joined Dave, the three-year-old financial services company, “in the newly created role of chief marketing officer with the goal of building its brand and bringing more people into banking.” Dave, “which says it has seven million customers, has raised $186 million from investors including Mark Cuban and Norwest Venture Partners.”

Competition

(requires WSJ Pro subscription)
“The future of electronic payments must make sure low-income citizens now without access to banks aren’t left behind, and one way to do that is for the U.S. government or the Federal Reserve to offer their own versions of bank accounts, according to a new paper from the Federal Reserve Bank of Atlanta.”

Financial Times

The race is on

Barclays “has reshuffled its highest ranks as the internal contest to succeed chief executive Jes Staley gathers pace, naming two of his top lieutenants to senior roles overseeing the investment bank. CS Venkatakrishnan was made global head of markets, overseeing Barclays’ trading operations, while Paul Compton was promoted to global head of banking, managing the other half of the investment bank, which includes M&A advisory and capital markets.”

“Mr. Venkatakrishnan and Mr. Compton, both former colleagues of Mr. Staley at JPMorgan Chase in New York, are now on a par as co-presidents of Barclays Bank, the unit that houses the group’s non-U.K. consumer operations. This sets them up in direct competition in the contest to succeed Mr. Staley, who is preparing to step down in the next few years.”

Wobbly stool

HSBC “faces an uncomfortable reality: the total market value of the group, known as HSBC Holdings, is lower than the tangible book value of The Hongkong and Shanghai Banking Corporation, HSBC’s founding entity, which now houses its Asian businesses. The market is in effect saying that HSBC is worthless outside Asia,” an FT op-ed says.

“In terms of capital allocation, the three-legged stool is still standing: 42% of capital is allocated to Asia; 19% to the Americas; and 39% to Europe, the Middle East and Africa. But in terms of profit generation, the stool is distinctly wobbly: Asia is massively dominant. It delivered 84% of profits in 2019, against 10% from the Americas and just 6% from Emea.”

“Now HSBC faces a similar choice between a future in Asia and its legacy as a British institution. History suggests the bank will choose Asia.”

Washington Post

Outlaws

JPMorgan Chase’s “record $920 million spoofing sanction is chump change for a $293 billion bank," a Bloomberg op-ed says. “Nonetheless, it’s troubling to discover that a Wall Street titan was manipulating one of the world’s most liquid securities markets — U.S. Treasury futures — long after the practice was outlawed. This shows how traders often remain fixed in their old ways. Keeping behavior in check is incredibly difficult even for those banks that can afford the most sophisticated surveillance.”

Elsewhere

Modest cuts

Goldman Sachs “plans to move forward with ‘a modest number of layoffs,’ months after the Wall Street bank paused job cuts due to the COVID-19 pandemic,” Reuters reported. “The bank was looking to cut about 400 jobs, or roughly 1% of its workforce.”

“At the outbreak of the pandemic, the firm announced that it would suspend any job reductions. The firm has made a decision to move forward with a modest number of layoffs,” a Goldman Sachs spokesperson said.

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