Breaking News This Morning ...
Covering themselves: Royal Bank of Scotland Group said it put aside an additional $3.8 billion to cover future settlements with the U.S. over the sale of toxic mortgage-backed securities, raising the British bank's total provisioning since the financial crisis to about $8.4 billion. The provision will likely push the bank "to one of its largest annual losses since its taxpayer bailout in 2008, further denting the bank's prospects for paying dividends in the medium term," the Wall Street Journal said, while at the same time "offering investors hope that the British bank is getting closer to resolving one of its last major crisis-era litigation headaches." Wall Street Journal, Financial Times, New York Times
Receiving Wide Coverage ...
In custody: JPMorgan Chase has won the custodial rights to more than $1 trillion of BlackRock Inc.'s assets, wresting the business from long-time custodian State Street. The deal, which is expected to take about two years to complete, will boost JPM's custodial assets to about $21.5 trillion, which could make it the second largest player in the business, behind only Bank of New York Mellon, which has an estimated $28 trillion. State Street would fall to third place.
"Many of BlackRock's clients will experience cost savings through decreased operating expenses at the fund level," said Derek Stein, head of BlackRock's business operations and technology. JPM is "likely to garner roughly tens of millions of dollars in annual fees in one of the largest-ever custody deals," the Wall Street Journal said. Wall Street Journal, Financial Times
School's out: Harvard University is expected to lay off about half of the 230 employees who manage the school's $35.7 billion endowment and outsource some of the management of that money. The endowment, the country's largest such fund by a wide margin, will close its internal hedge funds as part of the move. "We can no longer justify the organizational complexity and resources necessary to support the investing activities of these portfolios," said N.P. "Narv" Narvekar, the head of Harvard Management Company.
"The changes are a break with the university's long-held approach to managing its wealth," the Wall Street Journal noted. "While Yale University and others park nearly all their money with outside managers, Harvard for decades deployed a 'hybrid' approach, relying in part on its own traders to wager on assets such as stocks and bonds." That strategy, however, has produced the second lowest returns over the past 10 years among Ivy League schools. Wall Street Journal, Financial Times
Wall Street Journal
Power driver: Goldman Sachs was the single biggest contributor to pushing the Dow Jones Industrial Average over the 20,000 mark, the paper says. Goldman stock, which is up more than 30% since November 8, contributed nearly 22% of the index's gain since the November 8 election, or 378.91 points of the Dow's 1,735.77-point rise since.
Too generous?: The rising cost of credit card rewards, as competition ramps up, has hit some lenders' bottom lines, the Journal's Heard on the Street column reports. At Discover, for example, card rewards costs rose 10.5% in the most recent quarter from a year earlier, while the rate of rewards per dollar spent on its cards rose to 1.26% from 1.18%. At Capital One, which doesn't break out rewards the same way, transaction fee revenue was basically unchanged despite a 10% increase in purchase volume, indicating higher expenses for rewards. The industry "has moved into the more intense part of the competitive cycle," Capital One CEO Richard Fairbank warned on a conference call.
Regulatory burdens: Mark Carney, the governor of the Bank of England, is warning banks and financial technology companies "to expect tougher, more intrusive regulation as the use of disruptive technology in financial services becomes more sophisticated and widespread," the paper reports. Carney, who is also chairman of the Financial Stability Board, which makes recommendations to the G20 nations, said the rise of fintech "could signal an end to the traditional universal bank model."
"Authorities can be expected to pursue a more intense focus on the regulatory perimeter, more dynamic settings of prudential requirements, a broader commitment to resolution regimes, and a more disciplined management of operational and cyber risks," he told an audience in Germany.
At the same time, "thousands" of compliance jobs at the world's biggest banks created in recent years to meet increasing regulatory demands "will simply disappear" in the near future, thanks to greater use of artificial intelligence and other automated systems. Richard Lumb, head of financial services at Accenture, told the FT that new technologies "can take out thousands of roles" in compliance. "That is coming quite quickly now and that will sweep across the industry."
"We have been joined at the hip with them through their successful journey of asset growth." — Jay Hooley, CEO of State Street, after the bank lost its BlackRock custodial business to JPMorgan Chase