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JPM’s boffo earnings; N.Y. Fed says cyberattack could be ‘devastating’

Breaking News This Morning …

JPM tops expectations

JPMorgan Chase said fourth quarter earnings jumped 21% to $8.52 billion versus $7.07 billion in the year earlier period. Revenue rose 9% to $28.33 billion from $26.11 billion. The bank beat forecasts on both figures. meanwhile, Wells Fargo's profit plunged 53% in the quarter. Citigroup’s earnings climbed 15% to $4.98 billion as revenue rose 7% to $18.38 billion.

Receiving Wide Coverage ...

Visa buys Plaid

Visa agreed to pay $5.3 billion to acquire fintech firm Plaid. “The acquisition of the Silicon Valley company, which is backed by high profile tech investors including Mary Meeker and Andreessen Horowitz as well as Goldman Sachs, comes less than two years after it was valued at $2.65 billion,” the Financial Times reports.

“This acquisition is the natural evolution of Visa's 60-year journey from safely and securely connecting buyers and sellers to connecting consumers with digital financial services,” said Visa CEO Al Kelly. “The combination of Visa and Plaid will put us at the epicenter of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory.”

“More consumers over the past decade have been using financial-services apps to manage their savings and spending, and Plaid sits in the middle of those relationships, providing software that gives the apps access to financial accounts,” the Wall Street Journal reports. “Venmo, PayPal’s money-transfer service, is one of privately held Plaid’s biggest customers.”

“Visa has made a major score by agreeing to acquire Plaid, a technology company that it could have seen grow into a competitor,” according to American Banker.

The Plaid acquisition “is an expensive bet on how people and companies will pay and move money in the future,” the Journal writes in an analysis of the deal. “Visa doesn’t expect Plaid to be accretive for another three years.”

“But expensive doesn’t mean wrong. Plaid is one of a handful of firms that is central to facilitating the growth of new digital-financial services. Betterment, PayPal Holdings, Coinbase and others use Plaid’s software to link their trading, investment and payment services to more than 200 million consumer accounts at banks. What’s notable for Visa is that in many of those scenarios, credit or even debit cards aren’t involved.”

Wall Street Journal

Cyberattack could be 'devastating'

A cyberattack on the American banking system “could have a devastating effect on U.S. financial stability,” according to a “pre-mortem analysis” by the Federal Reserve Bank of New York. The research report “looked at how banks would react to cyberattacks that impaired their ability to process payments between banks.”

“A cyber attack on any of the most active U.S. banks that impairs any of those banks’ ability to send payments would likely be amplified to affect the liquidity of many other banks in the system,” the authors wrote. “The extent of the amplification would be even greater if banks respond strategically, which they are likely to do if there is uncertainty about the attack.”

Financial Times

It's not what you say ...

“JPMorgan Chase has suspended one of its most senior credit traders for using a WhatsApp group to communicate with colleagues, highlighting Wall Street’s growing concern about the use of unauthorized messaging systems that could circumvent compliance checks.” Edward Koo, who has worked at the bank for almost 20 years, “was put on leave in recent days while the bank investigates his role in the WhatsApp group,” which included less than 20 bank employees who used it to “discuss market color and other trading room chatter.”

“Regulators typically do not specifically ban Facebook-owned WhatsApp but require banks to make reasonable efforts to monitor employees’ communications. This is so that they can be analyzed for compliance with rules on everything from market manipulation to insider trading.”

We'll take it from here

“A small group of Wirecard shareholders are attempting to force their own review into allegations of fraud and false accounting at the German” payments company following chairman Wulf Matthias’ unexpected resignation late last Friday. He will be replaced by Thomas Eichelmann, the Deutsche Börse’s former chief financial officer, who is overseeing an internal probe of the company’s accounting practices.

“Wirecard has faced questions over its accounting practices for months, after the Financial Times reported concerns raised by whistleblowers, and in October hired big four accountant KPMG to investigate the matter, overseen by Mr. Eichelmann.” Wolfgang Schirp, the lawyer for the investors, said his clients include “more than 100 mostly German individual shareholders, family offices and small fund managers, who together own more than 2% in the company.” “They “have seen the stock fall and fall and just want to know what’s going on,” he said.

Help for regionals

Japan’s Financial Services Agency outlined “sweeping reforms” to help the country’s struggling regional banks, including letting them “participate in areas outside their core business for the first time since WWII, meaning that banks could turn themselves into management consultants and trading companies as they seek new ways to generate profit. The strategy, laid out in recent months, marks a shift in Tokyo’s approach to the 100-plus regional banks that dominate small business lending.”

“To get some kind of revival in regional economies, we need to change the behavior of the financial institutions,” FSA Commissioner Toshihide Endo told the paper. “Instead of sitting and waiting for companies to ask for money, why not go to companies yourselves offering advice and consultancy on how to find customers and grow your business?”

Elsewhere

New approach

Wells Fargo investors and analysts accustomed to “Midwestern lilts” and folksy charm from the bank’s previous CEOs can expect a completely different approach from new chief Charles Scharf as he makes his first earnings call Tuesday. “Scharf is not known for such pleasantries, several analysts who have worked with him” told Reuters. “He tended to give short, blunt answers when he was CEO of Visa and Bank of New York Mellon or when he was a senior executive at JPMorgan Chase, they said, noting that he is not shy about showing annoyance if he does not appreciate a question or comment.”

But “analysts who cover Wells Fargo said they will appreciate directness in a CEO, after years of feeling whipsawed by a sales scandal whose breadth and consequences have taken unexpected turns. Prior management teams initially downplayed the extent of the problems, and how they might affect profits, regulatory relationships and Wells Fargo’s reputation with customers.”

Quotable

“If a cyber attack were to compromise the integrity of banks’ systems, the reconciliation and recuperation process would be an unprecedented task. This could have severe implications on the stability of the broader financial system vis-à-vis spillovers to investors, creditors, and other financial market participants.” — A “pre-mortem” research report by the Federal Reserve Bank of New York on the possible effects of a cyberattack on the U.S. banking system

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