Fed votes to ease Volcker restriction; Truist reports a setback

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Easing Volcker

As expected, the Federal Reserve voted to allow banks to own stakes in venture capital funds. “The proposal to remove a 3% cap on such stakes is the latest step to ease a set of regulations known as the Volcker rule, which were enacted after the 2008 crisis in a bid to strengthen the financial system and reduce the chance of taxpayer-funded bailouts,” the Wall Street Journal says.

“Today’s proposal simply allows banks to engage in already permitted activities, such as venture capital investment, through a fund structure,” said Randal Quarles, the Fed’s vice chair for supervision.

Gov. Lael Brainard voted against the proposal, which passed by a 4-1 tally.

“Restrictions on funds owned by foreign banks, and on banks providing credit to wealth management vehicles and family offices would also be lightened,” the Financial Times notes. “Investing in hedge funds or private equity funds would remain off-limits.”

Greg Baer, the president of the Bank Policy Institute, called the proposal “all gain and no pain,” the Washington Post reports. It will “allow banks to get back to some important traditional commercial banking and asset management activities that the current rule prohibits, helping businesses grow and consumers build savings.”

“The plan would allow financial institutions to invest in funds that many stakeholders say were not meant to be the target of the Volcker Rule,” American Banker says.

Wall Street Journal

Patience

Shares of Truist Financial plunged more than 3% Thursday after it said the 2019 merger of BB&T and SunTrust “would take longer to deliver cost savings.” The bank “said it would reach 30% of its expected $1.6 billion in merger-related savings in 2020, down from its target of 50% announced alongside the deal,” which closed December 6.

The bank blamed the delay on not being able to close nearby branches as quickly as it had hoped. But CEO Kelly King “said he was still confident in the bank’s ability to fully realize its anticipated cost savings by its original target of 2022.”

The combined $473 billion-asset company is now pushing more of the deal’s cost savings to the third year, American Banker reports.

Short of the mark

Visa reported 10% gains in both earnings and net revenue for its first fiscal quarter but both fell slightly short of analysts’ estimates. The company also said it paid out $1.75 billion in client incentives, “or long-term contracts with merchants, clients and other partners to expand its network and payment volume. This year Visa projects incentives to eat away about 22.5% to 23.5% of gross revenue.”

Making headway

Deutsche Bank, which reported some bright spots amid a €5.3 billion ($5.8 billion) loss for full-year 2019, “has made a good start out of the blocks, but has a long way left to run.” The report, which helped drive up the company’s stock price more than 6% Thursday, “confirmed it is delivering on — and in some cases ahead of — its targets.”

“The numbers are noisy, though. It is still too early to tell if Germany’s biggest bank by assets is really finding new form. Clearly, Deutsche Bank still needs to do more to convince investors that this time it will cross the finish line,” the paper says.

Positive spin

Sheila Bair, the former chair of the Federal Deposit Insurance Corp. and a Republican, has a different view of Sen. Elizabeth Warren's motivations than others do.

“Throughout our working relationship, including the 2008 financial crisis and battles over financial reform, Ms. Warren always took a market-based approach to the issues,” Bair writes in an op-ed. “She abhorred the generosity of the bank bailouts not because she was a Wall Street-hating socialist, but because she knew that markets can’t work without accountability. She championed the creation of the Consumer Financial Protection Bureau not because she was a bureaucratic regulator, but because she knew that markets need level playing fields, and the field was tilted against working families and in favor of sophisticated banks.”

Helping those scammed

Some banks are helping people recover money they lost to phone scams, even though “there’s no specific legal obligation” to help fraud victims recover funds they agreed to transfer. However, “some banks ask customers to sign confidentiality agreements, attorneys say, because they don’t want consumers who hear about another person’s experience to expect that a bank will be successful in every case.”

Tried and true

“The digital revolution in banking is one of the major investment themes of the young century, pushing big share-price and valuation gains for financial-technology upstarts like PayPal and Square, as well as network giants like Mastercard and Visa.” But companies “whose fortunes are tied to physical cash in a major way, such as ATM providers like Cardtronics or Diebold Nixdorf, or companies that transfer or protect cash, like Western Union or Brink’s,” are doing even better. “Over the past year through Thursday, those four stocks on average are up 83%. That easily tops the average 39% gain for Mastercard, PayPal, Square and Visa," the paper reports.

“The main thing to remember: There is more than enough spending globally to keep a diversity of payments players swimming in dough,” the paper opines.

Financial Times

Rebounding

TSB, the U.K. bank that “was plunged into turmoil in 2018 when a long-planned systems upgrade left its customers unable to access their accounts, costing it more than £350 million and leading to a string of senior departures,” reported a pre-tax profit of £46 million for 2019 after taking a £105 million loss the previous year. CEO Debbie Crosbie said the bank was “beginning to get into our stride” as it reported that loans and deposits “had returned to where they were before the IT fiasco.” The bank, which is owned by Spanish lender Sabadell, “has since announced a strategy overhaul that will involve cutting hundreds of jobs, while investing in technology and small business banking to return to growth.”

Quotable

“I am concerned that several of the proposed changes will weaken core protections in the Volcker Rule and enable banking firms again to engage in high-risk activities. The proposal opens the door for firms to invest without limit in venture capital funds and credit funds.” — Fed Governor Lael Brainard, who cast the lone dissenting vote against a Fed proposal to allow banks to invest in venture capital funds

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