Goldman CEO’s political concerns; Wall Street eyes corporate HR

Receiving Wide Coverage ...

A costly move
Banco Santander threw the European bank bond market into a tizzy on Tuesday when it surprised investors by not calling a €1.5 billion ($1.33 billion) bond issue, “a move analysts said could ripple across a largely untested corner of the bond market.” The decision to not repay the bonds “is believed to be the first of its kind in the so-called additional tier 1 bond market. AT1 debt is considered particularly risky because it has a perpetual maturity — leaving issuers free not to ever repay bondholders.” The debt is generally redeemed on the first call date, according to the Wall Street Journal, "as a courtesy to investors seeking the option to sell some of the debt."

“This will impact banks across Europe. This type of debt will now cost banks more money,” one banker said.

Santander’s action “threatens to rattle Europe’s $200 billion market for riskier bank debt,” the Financial Times says. “Issuance of bank capital bonds has boomed since the financial crisis, as Europe’s lenders have looked to build up capital buffers without raising more equity. At the same time, the hunt for yield has led fixed-income investors to take on the extra risk the bonds bring.”

Wall Street Journal

The lure of HR
Wall Street investment banks, “better known for big trades and megamergers,” are suddenly finding the relatively ho-hum business of corporate human resources attractive. “It isn’t a glamorous business but it offers the type of sticky, predictable revenue that bank shareholders want — and executives are willing to embrace — as core Wall Street businesses struggle.” However, “the competition is formidable. Retail brokerages such as Fidelity Investments, Charles Schwab and E*Trade dominate the business. Newcomers also must be mindful of Wall Street’s reputation for unsavory sales practices.”

Financial Times

Burning bridges
Bank of America has spent $400 million to move its European bank headquarters to Dublin and has no plans to move back to the U.K. even if that country changes its mind about leaving the European Union, vice chairman Anne Finucane said. “Dublin is our headquarters for our European bank now full stop,” she said. “There isn’t a return. That bridge has been pulled up ... From a trading perspective, likewise Paris would be the European trading arm.” The Dublin bank has 800 people while the trading operation in Paris has 500.

Next phase, new wave?
The paper’s Banking Weekly podcast discusses whether the BB&T-SunTrust merger “heralds a new phase of M&A in U.S banking,” what Deutsche Bank's latest funding round “says about the broader bank financing market,” and why Lloyds is hiring 700 new financial advisers in the U.K.

Washington Post

Repo alert
The number of people with car loans 90 days or more past due hit a record seven million, “even more than during the wake of the financial crisis,” the Federal Reserve Bank of New York said. “Most of the people who are behind on their bills have low credit scores and are under age 30, suggesting young people are having a difficult time paying for their cars and their student loans at the same time.”

"[B]anks with more than $50 billion of assets originate more subprime car loans than small banks and credit unions do," American Banker reports.

Elsewhere

In the crosshairs
Goldman Sachs CEO David Solomon said he expects banks will be targets in the 2020 presidential election. “There's obviously a lot of political divide with respect to the role financial institutions play. In some way, shape or form, I think financial institutions will take some noise and some focus in that discussion,” he said at a financial industry conference. But he added it is too early to tell if that might lead to legislative changes. “It's something we in the industry will live with as we watch the political process unfold,” he said.

Goldman is looking to increase the number of mid-tier corporate clients over the next few years, Solomon noted. “There are lots and lots of companies with (enterprise) value at $500 million to $3 billion. There’s real ... expansion opportunity for the firm.”

Speaking at the same conference, Wells Fargo CFO John Shrewsberry said the bank predicts a 2% change in net interest income this year, with deposit pricing and loan growth determining whether the change is up or down..

Quotable

“I think the tone in Washington as we come into an election will be edgy with respect to our industry.” — Goldman Sachs CEO David Solomon.