GM looking at bank a charter; HSBC mulling exit from U.S. retail banking

Wall Street Journal

Back to banking

General Motors Financial Company, the automaker’s lending arm, “is drawing up plans to apply for a banking charter, a move that would allow it to accept deposits and expand its auto-finance business.” The unit “has been talking to federal and state banking regulators for months about forming an industrial loan company and could file applications to do so as early as December. It would be supervised by the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions, which grants the majority of these charters.”

“This is familiar territory for GM. The auto maker used this type of charter to operate GMAC, its former lending arm that nearly failed under the weight of soured subprime mortgages and was bailed out by the government during the 2008 financial crisis. This time around, the company would use its banking charter—and the ability to accept deposits—to support its auto-finance business. The company has also considered using the charter to offer consumers high-yield savings accounts and other deposit products.”

Uneven benefits

Federal loan deferral programs have helped millions of homeowners and student loan borrowers. But help for borrowers of other types of loans has been “more happenstance.”

That’s because the government “holds huge sway” over the mortgage and student loan industries. “But the government’s reach doesn’t extend to credit-card lending, auto loans or personal loans, and borrowers with those forms of debt ended up with much less relief. As a consequence, federal debt relief has been of greater benefit to homeowners and college graduates, many of whom entered the recession in relatively good financial shape. Lower-income workers, who are more likely to rent and to not have a college degree, saw less benefit.”

More spying

Lawyers for Credit Suisse “have found two earlier instances of employees being followed by private investigators, despite the bank’s assertions that it doesn’t condone physical surveillance. The additional incidents predate 2019’s high-profile scandal that involved two employees being followed.”

One of the incidents involved a New York-based employee in October 2017 while the other took place in Asia in March 2018.

Financial Times

Should we stay or should we go?

HSBC is “weighing up a complete exit from retail banking in the U.S. after narrowing the options for how to improve performance at its struggling North America business. Senior management aims to present the plan to the bank’s board in the coming weeks, as HSBC seeks to allocate resources away from the U.S. in favor of more profitable businesses in Asia. Closure of the U.S. retail network would mark the end of the lender’s 40-year long attempt to run a full-service, universal bank in the country.”

However, “a full exit from the U.S. is no longer on the table,” the FT’s sources said. “It is also seeking to grow its U.S. wealth management division. Managers are likely to also recommend trimming HSBC’s investment bank client roster to focus on international clients, particularly those with Asian and Middle Eastern links.”

Curb your enthusiasm

Wells Fargo, “the most beat up of the bank stocks,” is up “by a third in the last month, outperforming a resurgent banking sector. It makes sense that it should rebound now the group is back in favor. But Wells’ comeback will take longer than a single market cycle,” the FT warns.

Bracing for trouble

The European Commission “is planning to lay out a raft of proposals in a bid to make it easier for banks [in the European Union] to offload soured loans as it anticipates the risk of a pandemic-related wave of corporate distress. A paper due to be published in December will discuss ideas including boosting secondary markets for buying and selling non-performing loans (NPLs) and creating a network of national bad banks across the EU.”

“Europe is braced for a surge in insolvencies once national business support programs lapse next year. The commission wants to avoid the mistakes made in the last financial crisis more than a decade ago, when a failure to quickly tackle NPLs impaired banks’ ability to bolster lending once the recovery gathered strength.”

Under investigation

Deutsche Bank’s head of accounting, Andreas Loetscher, is being investigated by Germany’s audit watchdog Apas “over potential misconduct in his previous role at EY, where he was one of the partners responsible for the audits of Wirecard,” the failed payments company. Wirecard “received unqualified audits from EY for more than a decade before it collapsed into insolvency this summer.”

“Mr. Loetscher, who joined Germany’s largest lender in May 2018 after a two-decade long career at the Big Four firm, is one of at least two Wirecard auditors who are personally being investigated by Germany’s audit oversight body Apas over potential violations of professional duties. In late September the watchdog informed criminal prosecutors that EY may have acted criminally.”

The next crisis

Former HSBC CEO John Flint is calling for creation of “a new, world-leading Digital Conduct Authority” to regulate big technology companies, akin to the increased regulation of banks following the 2008 financial crisis.

“When bankers got too clever and our businesses too complex, we all suffered the consequences,” he writes in an op-ed. “Society was exposed to risks it didn’t understand, and we all paid the price via government-backed bailouts. Today, warning signs are flashing again. But this time it is the technology sector rather than the financial that is leaving us all exposed. The risk for consumers if tech companies deliver bad outcomes is now just as grave as that from financial services. But we are not organized to deal with it. We must act now.”

Washington Post

Prospering from the pandemic

“Covid-19 has been good for Bitcoin and for cryptocurrency generally,” the historian Niall Ferguson writes in a Bloomberg analysis piece. “First, the pandemic accelerated our advance into a more digital word: What might have taken 10 years has been achieved in 10 months. People who had never before risked an online transaction were forced to try, for the simple reason that banks were closed. Second, and as a result, the pandemic significantly increased our exposure to financial surveillance as well as financial fraud. Both these trends have been good for Bitcoin.”

Quotable

“Drawing lessons from the last severe economic crisis, it is imperative to address a renewed build-up of [nonperforming loans] on banks’ balance sheets — as early as possible — in order to combat the implications of the pandemic.” — A European Commission report that wants to make it easier for banks to dispose of bad loans expected from the current crisis.