Fed payments system goes down for hours; mortgage apps drop on rate hike

Receiving Wide Coverage ...

Technical fault

The Federal Reserve said “an unspecified error disrupted all of its financial-services systems in an extraordinary event that took down key payment systems used by banks, businesses and government agencies for several hours” on Wednesday. “Central bank officials couldn’t immediately recall a similar episode affecting its systems, which had been seen as extremely reliable. The disruption caused a payment backlog to build up at banks, which they began working through once the issue resolved.”

While the cause of the glitch was unknown, the Treasury Department said “there is no indication that the issue is the result of a cyberattack.”

“Although the problems were resolved within a few hours, the breakdown will raise concerns about the reliability of the processes that ensure the smooth processing of up to $4 trillion of financial transactions every day,” the Financial Times said.

Wall Street Journal

Cooling off period

“The average rate on a 30-year fixed-rate mortgage rose to 2.81%” last week, “the highest since the second week of November,” according to Freddie Mac. The increase helped “cool off home purchase and refinance applications ahead of the all-important spring selling season,” with mortgage applications falling 11.4% over the same period, according to the Mortgage Bankers Association.

As good as it gets?

Shares of big banks have outperformed the S&P 500 by a wide margin this year as the yield on the 10-year Treasury note has jumped. But while “higher Treasury yields create opportunities to pick up interest income, the benefit for shares may be limited without more loan demand,” the Journal says.

Tied to bitcoin

Square “bought an additional $170 million worth” of bitcoin in last year’s fourth quarter, and the digital currency “now makes up about 5% of the company’s cash, cash equivalents and marketable securities, certainly more grist for those who believe bitcoin’s price tumble this week is just a hiccup.”

“This may perhaps import a bit of bitcoin’s volatility into the company’s share price, which dipped 6% on Wednesday morning. Though any discount to its multiple would hardly make a dent: Square is trading at over 190 times forward earnings. Still, it emphasizes the point that Square may need some pandemic-era trends, including the enthusiasm for bitcoin, to last into the future to reach the goals investors are betting on.”

Financial Times

Moonlighting

A senior investment banker at Italy’s UniCredit has left the bank “following revelations about her business relationship” with Markus Braun, the former CEO of new defunct Wirecard.

Last year, the banker, Jana Hecker, “helped to arrange loans on behalf of Braun’s family office in the run-up to Wirecard’s collapse. The work was separate from her job at UniCredit. Between February and May 2020, she advised the former Wirecard chief executive on the refinancing of €110 million in loans that Deutsche Bank wanted to terminate.” The German payments company failed in June 2020.

Separately, Hubert Barth, the head of EY Germany, Wirecard’s longstanding auditor, is expected to step down from that role and take another position at the firm. “EY has been under intense pressure since the payments firm collapsed into insolvency. EY had previously issued unqualified audits for Wirecard for about a decade.”

Elsewhere

Cutting at home

Spain’s BBVA “is considering cutting around 3,000 jobs in its home market, or around 10% of its staff there, to adapt to the rise in online banking,” Reuters said, citing a Spanish newspaper report. “BBVA has around 29,300 employees in Spain out of around 123,000 globally.”

“Spanish and European lenders are pursuing different alternatives to cut costs, either through tie-ups or on a standalone basis, as they grapple with the effects from the COVID-19 pandemic and ultra-low interest rates. BBVA’s main competitor in Spain, Santander, last year announced it would lay off nearly 3,600 employees and cut around 30% of branches in the country.”

Quotable

“Higher rates are a signal of expectations of faster growth and a stronger job market ahead. This last week, rates have turned faster than many people had anticipated.” — Mike Fratantoni, chief economist of the Mortgage Bankers Association, on the recent rise in mortgage rates.