German megadeal called off; PayPal discloses Venmo user base
Breaking News This Morning ...
Deutsche Bank and Commerzbank have ended their merger talks, “leaving in tatters the German government’s hope to shore up both banks and create a banking powerhouse. The failure to unite the two ailing lenders is likely to unleash fresh attempts by other banks to scoop up one or both of the banks, a process that could spur the biggest reshuffling of European banking assets since the financial crisis.”
The failed talks “could open the door for foreign rivals to acquire” Commerzbank. They also leave both banks “seeking strategic alternatives to cut costs and stem revenue losses, while grappling with historically low interest rates, fierce domestic competition and high funding costs.” Financial Times, New York Times, Washington Post
Receiving Wide Coverage ...
Barclays said net profit at its corporate and investment bank fell 28% in the first quarter. Overall, net profit rose to £1.04 billion from a £764 million net loss in the year earlier period that was due to regulatory settlements.
The U.K. bank “slashed costs at its investment bank to the lowest level in almost four years as it attempts to improve profitability at the underperforming unit and stave off an attack from activist investor Edward Bramson.”
Wall Street Journal
Lifting the curtain
PayPal “lifted the veil” for the first time on Venmo, “one of its fastest-growing segments,” disclosing that the digital-money transfer service has more than 40 million individual users. That makes it “among the most popular financial apps in the country,” with “more users than some of the largest U.S. financial institutions. The only big U.S. bank with a larger digital footprint than Venmo was JPMorgan Chase, which reported 51 million digital users in the first quarter.”
The Federal Deposit Insurance Corp. is putting together “a stable of executives” who would be “qualified to serve as board members or executives at banks seized by the agency in the future.” While “there is no immediate need” for these bankers, as no American bank has failed since December 2017, “the agency is trying to avoid some of the pitfalls of the last financial crisis, which led to a spate of bank failures that strained its resources.”
Francisco Pinto-Leite, the UBS manager who fired a senior investment banker and a lieutenant in December “for allegedly not telling their managers and the bank’s compliance officials that a bond the firm was underwriting had been reclassified as a loan,” plans to leave the Swiss bank by the end of the year. “The episode took on wider significance because it shows banks are still grappling with tighter regulation initiated during the Obama administration on risky lending.” James Boland, the fired banker, is appealing his dismissal.
Thinking it over
The Financial Conduct Authority, the U.K,’s top financial watchdog, “is considering whether to disclose more information to the public about continuing investigations, citing consumer interest in certain cases, as part of a broader review of its approach to enforcement. The FCA now discloses investigations only in limited circumstances.”
U.S. Justice Department prosecutors want a settlement with Goldman Sachs over its role in the 1MDB corruption scandal that “includes a guilty plea at the parent company level. Any such plea would be the toughest penalty the Department of Justice could bring against Goldman. The internal recommendation by career prosecutors investigating the bank is now being considered by senior officials at the justice department.” However, “any final settlement with Goldman could be less onerous.”
Visa reported better than expected results for its second quarter and raised its earnings outlook for the year “as continued growth in payments and transactions helped it fend off the effects of a stronger U.S. dollar.”
Wirecard, the German payments company that on Tuesday announced a €900 million ($1 billion) investment by Softbank, received “half of its worldwide revenue and almost all of its reported profits from only three opaque partner companies in recent years,” the FT reports. “Much of these profits from the three partners were booked through Wirecard’s largest business, CardSystems Middle East, in Dubai in 2016 and 2017, according to whistleblowers who said accounts for the unit were not audited in those years. The importance of CardSystems and the three partners to Wirecard’s financial ecosystem has never been flagged to shareholders.”
On Thursday the company released its full-year earnings report, which had been delayed three weeks. Wirecard said its auditor EY “signed off on its 2018 accounts and that the supervisory board had agreed on measures to improve processes at the company.”
“I don’t want to be a liability. Why should we risk a Senate seat for a Federal Reserve board person, you know? I mean that just doesn’t make any sense.” — Stephen Moore, who is being considered for a seat on the Federal Reserve Board of Governors, saying he would bow out of the process if he became a political liability to President Trump or Senate Republicans.