Italy fears hit U.S. bank stocks; Ken Chenault’s new venture

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Agita: Banks led a sharp decline in U.S. stocks on Tuesday, fueled by concerns about the political situation in Italy and its effect on that nation’s banks, and possible repercussions elsewhere. In the U.S., the S&P 500’s financials sector fell 3.4%, with Citigroup and JPMorgan Chase both falling more than 4% and Morgan Stanley dropping nearly 6%. Wall Street Journal, New York Times, Washington Post

In Europe, yields on Italian bank bonds “surged dramatically” as prices plummeted. For example, the yield on a 10-year bond issued by Monte dei Paschi di Siena, the world’s oldest bank, which was rescued by the government last year, rose to more than 9.5%. The yield on bonds of UniCredit, Italy’s largest bank, rose to 7.7%.

“Riskier forms of bank debt that count towards financial institutions’ capital ratios [saw] the sharpest sell-off,” the Financial Times reports. “These bonds are more exposed to losses when banks need to be rescued.” Wall Street Journal, Financial Times here and here

Yields on bank bonds from Spain, France and Germany have also risen in recent days following the inability of the two leading Italian political parties to form a populist government. “This matters because it feeds directly into the cost of funding for banks and the lending they can supply to the wider economy,” the Wall Street Journal notes.

In a podcast, FT banking editor Martin Arnold and guests discuss the impact of Italy’s political crisis on the country’s banks, plus the return of “animal spirits” to the U.S. banking industry.

Wall Street Journal

A central banker walks into a bar … : Some of the world’s major central banks have turned to unusual and unconventional methods to try to “engage and educate the general public. Top officials are venturing out to open-air markets, holding open-day festivals and quick-fire question-and-answer sessions on social media, and producing games, cartoons and videos. Some forays go better than others.”

The long and winding road: Despite “rocket” mortgages and “paperless” mortgage documents, buying a house and getting a loan is still “a process,” editor Matthew Hennessey found out first-hand recently. His adventure took more than two months.

Money for nothing: Block.one, a Cayman Islands-based start-up company, is on track to raise more than $4 billion through the sale of digital tokens, the largest such deal of its kind. But buyers of the tokens still don’t know what the company plans to do with all that money. “That a little known startup could raise so much money without a concrete plan for it speaks to trends in the topsy-turvy world of cryptocurrencies and views of the future of the online world,” the paper comments.

Financial Times

The American dream: The venture capital firm headed by former American Express CEO Kenneth Chenault is backing a start-up company that aims to provide credit scores for new immigrants to the U.S. Chenault’s firm, General Catalyst, is providing funding for Nova Credit, which pulls the person’s credit history from their country of origin and converts it into an American credit score.

No to coal: A day after the New York Times reported that American banks have resumed lending to coal companies, the FT reports that Royal Bank of Scotland “has become the latest [U.K.] bank to stop financing environmentally damaging energy and mining projects, as investors ramp up pressure on lenders to do more to tackle climate change.” The bank, which is still majority-owned by the British government, said Tuesday that it would “stop providing project-specific funding for new coal-fired power stations and thermal coal mines. It will also stop general lending to mining companies that rely on coal for more than 40% of their revenues and power companies that generate more than 40% of their electricity from coal.”

Paved with gold: Jonathan Hill, the U.K.’s former representative at the European Commission, has joined UBS as an adviser, “the latest senior politician to take a lucrative role at a large financial institution. His appointment may revive criticism of the revolving door between politics and the City of London.”

Quotable

“The company has the potential to bring millions of new consumers to the financial services industry and to create new banking and credit opportunities for people who, up until now, have been left out of the system.” — Former American Express CEO Kenneth Chenault about a new credit scoring company his venture capital firm is supporting.