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Goldman, Barclays sizing up GM card; Fed official warns on pandemic

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Kicking the tires

Goldman Sachs and Barclays are seeking to wrest control of General Motors’ credit card business from Capital One, which has issued the card since 2012 and is under contract for another year. For Goldman, it means “doubling down on consumer banking and betting on a future where people pay for gas, takeout and groceries from the driver’s seat,” the Wall Street Journal reported. “There is no guarantee that GM will ultimately choose to replace its current card issuer,” the Journal said. The GM card has about $3 billion in outstanding balances.

Goldman, which currently issues the Apple card, “agreed not to launch another co-branded card for about another year, according to people familiar with the matter, but has been open about its desire to add more merchants. It will have to unseat big banks that dominate the co-brand space, including Synchrony Financial and Citigroup, whose former head of card partnerships, Scott Young, Goldman hired in 2017 to pursue similar deals.”

“Adding the GM business would more than double the size of Goldman’s card portfolio,” the Financial Times said. “Goldman now holds $2.3 billion in credit card loans, up for $1.9 billion at the start of the year. Increasing its consumer franchise has been a key plank of Goldman Sachs’ strategy under David Solomon, chief executive, who took the helm in 2018. Returns in the bank’s core trading and investment banking businesses have been diminished by post-financial crisis capital requirements, and investors have soured on the volatility of capital market-sensitive businesses.”

Wall Street Journal

Temperature rising

Boston Federal Reserve President Eric Rosengren warned Wednesday that “a recent slowdown in U.S. economic activity was likely to persist because of difficulties states have encountered in suppressing the coronavirus pandemic, which could require more government spending to support the economy.”

“Limited or inconsistent efforts by states to control the virus based on public health guidance are not only placing citizens at unnecessary risk of severe illness and possible death but are also likely to prolong the economic downturn,” he said. “Mr. Rosengren said he expected the unemployment rate, which stood slightly above 10% in July, would be slow to decline given worsening public-health situations in some states that were quick to lift lockdown orders in May.”

Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston.
Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston.

Despite a slow start, the Fed’s Main Street Lending Program is gaining steam, Rosengren said, American Banker’s Hannah Lang reports. “Rosengren said the $600 billion middle-market business rescue program as of Aug. 10 had purchased participations in 32 loans totaling about $250 million. That is four times the amount of loans processed through the program as of July 27.”

Wanted

“German investigators are asking the public to help them find Jan Marsalek, the elusive former Wirecard executive who prosecutors suspect played a central role in inflating the fintech company’s results by booking fake income for years. German prosecutors suspect Mr. Marsalek, longtime Chief Executive Markus Braun and others colluded to inflate the company’s results by booking fake income since at least 2015, which allowed Wirecard to raise €3.2 billion ($3.8 billion) in loans prosecutors believe are now likely lost. But while Mr. Braun and three others have been arrested since, Mr. Marsalek has eluded authorities since the company’s collapse in June.”

Financial Times

Risky business

Dutch bank ABN Amro “said it would slash the size of its corporate and investment banking business after a series of high-profile losses highlighted excessive risk-taking in the division and exacerbated the impact of coronavirus. The bank said Wednesday it would wind down all of its non-European corporate banking operations and stop providing trade and commodity finance.”

“ABN said it would shut non-core operations worth about 35% of the unit’s risk-weighted assets and 10% of the overall bank over the next three to four years, with about 800 jobs affected. Clifford Abrahams, ABN chief financial officer, said the bank would consider selling assets to speed up the wind-down if market conditions improve, but said it was ‘not going to adopt a fire sale approach.’”

Lawyer probed

A lawyer hired by UBS “to review the way in which the bank investigated the complaint of a trader who said she was raped by a colleague” is being investigated by the U.K Solicitors Regulation Authority. The agency is probing Caroline Stroud, “one of the U.K.’s most powerful employment litigation lawyers,” to determine “whether misconduct may have taken place based on the evidence gathered.” The trader had “sued UBS for allegedly mishandling her allegation of rape in 2017 and failing to protect her.”

Ripple effect

In an effort to attract more users, Ripple, the San Francisco startup that “can lay claim to having created one of the most valuable cryptocurrencies” in XRP, “has struck out in a new direction: to try to become the Amazon of the cryptocurrency world, using its platform to support activities far beyond the original cross-border payments system it hoped to build.” According to CEO Brad Garlinghouse, “this latest effort will turn Ripple into a broader blockchain platform in much the way Amazon has become a platform for a wide range of ecommerce.”

“Amazon started as a bookseller and just sold books. We happen to have started with payments,” he said. “Two years from now, you’re going to find that Ripple is to payments as Amazon was to books.”

New York Times

Getting ugly

“Unwilling to risk any more missed interest payments, some real estate investors, including the hedge funds and private equity firms that hold those loans, are taking property owners and developers to court, hoping to foreclose on their interests in the properties and minimize their financial losses.”

“These cases have been initiated by a type of lender that is driven largely by narrow financial interests, but real estate lawyers and lenders expect foreclosure proceedings to become more widespread the longer commercial tenants fail to keep up with the monthly rent checks. Given that a full economic recovery from the pandemic is probably years in the making, things could get much uglier in the commercial real estate market before they improve.”

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