Goldman seeks license in Japan; Fannie, Freddie bill prospects dim

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Wall Street Journal

Life lessons
Recent college graduates living in high-priced cities often need help with the rent, giving rise to a new market for lenders. “Rising housing costs and a several-decade trend of stagnating real wages” are forcing some renters to turn to a lending market “long associated with payday lenders” to help them make their monthly payments. But “compared with cash-advance loans, which come with annual interest rates as high as 700% in some states, funds from the rent-lending startups are available at much lower cost. Some are competitive with credit-card borrowing rates at less than 20%. That is a big help for those who rely on irregular paychecks or can’t come up with large move-in deposits.” Lenders in the market include Uplift, Domuso and Till.

What a coincidence
Payday lenders have been organizing their customers to support a Consumer Financial Protection Bureau proposal to roll back stricter underwriting rules on the lenders. According to Allied Progress, a consumer group, about a fourth of the nearly 17,000 comments to the CFPB included duplicate language. “We haven’t made a formal allegation of fraud. But it certainly deserves serious scrutiny,” said Jeremy Funk, a spokesman for Allied Progress.

Financial Times

Dark outlook
Sen. Sherrod Brown, D-Ohio, the leading Democrat on the Senate Banking Committee, said he is “not optimistic” that Congress will be able to pass a bill to privatize Fannie Mae and Freddie Mac. “We are working on it, but I am not optimistic,” he told the paper.

Konnichiwa
Goldman Sachs is applying for a banking license in Japan as it prepares to launch a “high-tech” global cash management business later this year. The bank currently has banking licenses in the U.S., U.K., Germany, and Hong Kong. CEO David Solomon “recently said the bank would be $100 million a year better off just by managing its own money in house.” Cash management “demands a global network” and that “even just servicing Goldman’s own needs would require a significant global presence.”

Mixed signals
Negotiations between Deutsche Bank and UBS about merging their asset management units “have hit a major hurdle” over disagreements over who would control the combined €1.4 trillion business, which would be the biggest asset management firm in Europe. “The stalling of the asset management talks is a further setback to Deutsche only weeks after it abandoned lengthy discussions about merging with its main German rival Commerzbank.” While the talks between the two banks continue, they currently don’t have the traction they should have.”

On a more positive note, Deutsche Bank received a “much-needed boost” Monday following the initial trading of a credit default swap product that reduces by half the cost of insuring against a bond default by the bank. “This is important because Deutsche has been struggling with spiraling funding and transaction costs as investors have worried about dwindling investment bank revenues and low profitability.”

“This will lower the cost for counterparties hedging exposures to Deutsche,” CFO James von Moltke said. “It also creates a level playing field for German banks versus their European and U.S. peers.”

But that price differential “has little to do with surging confidence in the German bank, however, and everything to do with quirks of these financial contracts,” the paper cautions. The bank’s stock is still down by half since the beginning of 2018 and “trades at less than a quarter of book value, while the new CDS is still more than double that of BNP Paribas and Santander.”

Quotable

“I still do not think the proponents of this have produced enough evidence that it is better than the status quo. The status quo is not particularly bad.” — Sen. Sherrod Brown, D-Ohio, on the prospects for privatizing Fannie Mae and Freddie Mac.

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