Fed’s hard sell on SOFR; Consumers dialed in on phone banking

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Wall Street Journal

SOFR, too slow
The Alternative Reference Rate Committee, a Federal Reserve-led working group of banks and investment firms, is “gathering momentum” to pressure Wall Street into adopting the secured overnight financing rate, or SOFR, to replace the London interbank offered rate as a bond and loan pricing benchmark. Most Wall Street firms “have been slow to make the switch” despite the fact that Libor is scheduled for replacement in 2021.

“Finding a substitute is a key challenge for banks, companies and investors. Each wants a reference rate that reflects the risks from short-term lending and is supported by a liquid market that behaves in a predictable manner," the paper says. "Properly setting the rates on business and consumer loans can determine whether they are affordable for borrowers and profitable for lenders.”

Smartphone revolution
Competition is growing in the digital banking business. Shares of Green Dot, the big reloadable prepaid card issuer, dropped 42% last Thursday before recovering by about 9% on Friday after it disclosed that it “is losing users.” At the same time, “challengers offering smartphone-based bank accounts, such as Acorns Grow, Chime Financial and Square have added millions of accounts in just the past year.”

“Several so-called neobanks flush with new rounds of venture capital [are] spending a record amount of marketing dollars to convert customers to their largely free bank account offerings,” Green Dot CEO Steven Streit said. “There’s little doubt in our minds that the increased marketing spend from so many competitors in aggregate is taking its toll on our new-customer acquisition.”

Mission accomplished, almost
Italian banks “have made a big leap forward” in reducing the mountain of bad debt “that has dogged them for years and threatened the stability of the whole eurozone.” The number of bad loans on Italian banks’ balance sheets dropped to €190 billion, or around 9% of their total loans, at the beginning of this year from €350 billion, or 17%, at the end of 2016, according to the Bank of Italy.

“The cleanup of Italian banks’ balance sheets has been completed, for the large part,” said Fabrizio Bernardi, senior analyst at Fidentiis, a Milan-based brokerage firm.

Financial Times

Cruel, cruel summer
Global investment banks including HSBC, Barclays, Société Générale, Citigroup and Deutsche Bank have announced almost 30,000 layoffs since April “as falling interest rates, weak trading volumes and the march of automation create a brutal summer for the sector. Most of the cuts have come in Europe, with Deutsche accounting for more than half the total, while trading desks have been hit hardest. While the reasons given vary from bank to bank, there are signs that deeper trends, such as the increasing pile of debt paying negative interest rates, are forcing the sector to shrink.”

“Clearly, the outlook for investment banking revenue is getting tougher,” said Andrew Lowe, a banking analyst at Berenberg. “It’s hard to make money as an investment bank in a zero or negative rates environment.”

Milestone
Royal Bank of Scotland is expected to name Alison Rose as its next CEO, “making her the first woman to run a large British bank.” The formal announcement is expected later this month. Rose was chosen instead of Ian Stuart, the head of HSBC’s U.K. bank, to succeed Ross McEwan, who was recently appointed CEO of National Australia Bank.

“The bank’s directors interviewed both candidates last month and were impressed by Ms. Rose’s deep knowledge of the lender and her plans for reshaping the group, which is majority owned by the government.”

Open positions
“Mark Tucker’s first major decision after he became HSBC chairman in 2017” was to appoint John Flint as CEO, a decision he now “beats himself up about every day” since Flint was asked to leave last week. “Now on the hunt for a replacement CEO, [Tucker] will not want to flunk it a second time round.”

“While the ejection of John Flint after just 18 months in the role sent shockwaves through the conservative company, it did not surprise those who know Mr. Tucker best,” one of whom says he has “no patience for non-performers. He would give people a chance, but if they didn’t perform for a couple of years, he would have no hesitation about making a change.”

Meanwhile, HSBC said Helen Wong, the bank’s CEO of Greater China, is resigning after nearly 10 years in the post and 30 years at the bank. Wong, who “presided over an expansion of HSBC’s operations in the region, leaves HSBC at a complex moment for the bank, which is contending with an escalating trade war between the U.S. and China as well as social unrest in Hong Kong.”

Bailing out?
The German government is looking to hire an outside investment advisor to help it decide if it should sell its 15.6% stake in Commerzbank, which will likely involve a substantial loss to German taxpayers. The government became the bank’s largest shareholder, as a result of a bailout during the financial crisis. “Shares in the lender have fallen 91% over the past 10 years, creating large paper losses for the taxpayer. The government on average paid €26 per share for its stake in the Frankfurt-based lender, compared to a current share price of €5.43.” The advisor will also be asked to assess a new strategy for the bank.

New York Times

Parting gift
JPMorgan Chase is giving each of its Canadian credit card customers a “dream come true”: wiping out their existing balances as it closes down the business. Chase “felt it was a better decision for all parties, particularly our customers, to forgive the debt,” bank spokeswoman Maria Martinez said. The bank stopped taking new applications two years ago and in March 2018 blocked customers from incurring new charges, although it continued to collect payments on existing balances. Martinez declined to say how much debt the bank was writing off.

Elsewhere

Rise in bankruptcies
“More consumers nationwide are falling behind on their payments and filing for bankruptcy to resolve overwhelming debt loads,” the New York Post reports. According to the American Bankruptcy Institute, bankruptcy filings rose 3% in July from the year-earlier period. “If the trend continues, this year’s overall total of bankruptcies is on pace to hit 796,000, far exceeding the 777,000 for last year.”

Quotable

“No question about the fact that credit quality is declining. I feel very confident — unfortunately — that there will be increases in bankruptcies.” — Dick Bove, a financial strategist at Odeon Capital Group, about the recent rise in personal bankruptcies

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