Woman behind postal banking push; Citi's Mexico problem

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Faster and cheaper
A group of 14 big international banks led by UBS Group is launching a digital token to settle cross-border trades, “one of the biggest developments yet in the effort to make use of nascent blockchain technology.” The launch of the utility settlement coin, or USC, “four years in the making, may herald a new phase in the banking sector’s adoption of blockchain. The USC token would function both as a payment device and messenger that carries all the information required to complete a trade, potentially cutting down on a transaction’s time and cost.”

Separately, Facebook has begun talks with the Commodity Futures Trading Commission about its plans for a digital currency “in a sign of how the world’s largest social media platform is laying the groundwork for an ambitious push in to payments.” The proposed coin “would allow users to send money to each other and buy things on the platform.”

Moving on
Kevin Hassett, the chairman of the White House Council of Economic Advisers, said he is stepping down. “It’s just normal, circle-of-life kind of things,” he said. “It has nothing to do with any policy disagreements. The president and I are quite friendly.” President Trump said he will name a replacement soon. Wall Street Journal, New York Times, Washington Post

Less than zero
European banks are being “buffeted by the recent plunge in Europe’s already low interest rates,” which have fallen back into negative territory. “Low rates crimp banks’ net-interest margins, the difference between what banks pay for funding and what they make from loans. The low yields are being driven by worries about the strength of the global economy, making safe assets more attractive. Investors said they expect the pain for banks to continue until interest rates eventually rise. But many economists don’t expect the European Central Bank to move benchmark rates for years.”

Meanwhile, Credit Suisse CEO Tidjane Thiam says mergers among European banks are “not the best way” to deal with negative interest rates. “That is not the solution,” he told a Swiss newspaper. “Negative interest rates have created an extremely difficult environment, where many banks have come under long-term pressure. A merger here would fix nothing.”

Wall Street Journal

Addressing the unbanked
The go-to consultant for liberal Democrat politicians pushing for the U.S. Postal Service to offer banking services to the unbanked is a former Wall Street lawyer who “helped large banks turn to the government to survive the financial crisis.” Mehrsa Baradaran, now a law professor at the University of California-Irvine, “contends that private banks have failed to address the needs of millions of households and that a government-backed option can close the gap.”

Bigger issues
Citigroup’s share price dropped more than 2% on Friday after President Trump threatened to impose new tariffs on Mexico, “the bank’s largest country risk exposure after the U.S. and U.K.” But CEO Michael Corbat says the bank has bigger problems in Mexico, where businesses are “as disengaged as I’ve seen,” even before Trump spoke. “Growth has been slowing ... a bit faster than we would have expected,” Corbat said, adding Citi would “cut costs and manage its credit risk to preserve profit if revenues tailed off.”

Financial Times

Bring on the heartland
Goldman Sachs president John Waldron is “pledging to take the bank deeper into middle America by winning investment banking business from 1,700 extra midsize clients in the next three years.” He told a conference in New York on Friday that Goldman will be targeting companies “worth less than $2 billion, an area of investment banking which in the U.S. traditionally has been dominated by the likes of Bank of America and JPMorgan Chase, as well as smaller firms such as Baird.” Goldman already has more than 3,000 clients of this size and “plans to win more of them in the next three years by dedicating around 100 bankers to the drive.” However, Waldron also “downplayed expectations that the bank’s trading business would be dramatically scaled back as Goldman seeks areas of growth elsewhere.”

The necessary move
Jamie Dimon was “wrong, in more than one way,” when he called Wells Fargo “irresponsible” last week for letting CEO Tim Sloan go without at the same time naming a permanent successor, the paper says. “Tim Sloan had to go, for Wells to reset regulatory relations and to move on from scandal,” the paper argues. Wells “needs to get back in the game, and it cannot do so until it gets its reputational, political and regulatory houses in order. That was never going to happen under Mr. Sloan. From an external perspective, Mr. Sloan was finished, and in banking more than in any business outside of Hollywood, appearance is reality. Mr. Dimon, at the height of his powers and the top of the industry, can be excused for forgetting that.”

Partners
Santander and eBay are launching a lending partnership in the U.K. to offer loans to small businesses that sell on the auction site in order to “combat competition from tech giants and newer digital rivals.” The loans will be offered through Asto, an app owned by the Spanish bank, which “will be able to connect to eBay’s data on measures such as sales and cash flow to identify prospective customers and strengthen its credit decision-making process.”

Washington Post

Called to account
U.S. financial regulators “need to rein in the growth of high-risk, high-yield lending to business” from “the opaque and unregulated shadow banking system on Wall Street that has now supplanted regulated banks as the leading source of credit for businesses and consumers,” the paper warns. “If they wait to act until they can say with certainty that a credit bubble is about to burst, they’ve waited too long.

“[Jerome] Powell, [Randal] Quarles and [Steven] Mnuchin are inclined, either by biography or ideology, to adopt a stance of watchful waiting while assuring us that today is nothing like 2008 and the situation is well in hand,” the paper argues. “When the corporate credit bubble bursts — when companies can’t repay their debts and the shadow banks collapse and lending dries up and stock prices plunge and the economy again falls into recession — they are the ones who should be hauled up before the court of public opinion and called to account.”

Quotable

“When you see behind the curtain, you see that it’s not based on market rules. These [banks] are not private institutions. That is what stuck with me.” — Mehrsa Baradaran, a law professor at the University of California-Irvine, who supports the idea of the U.S. Postal Service competing with private banks to offer services to the unbanked, noting that “banks and the government are inextricably linked, in forms ranging from taxpayer support to charter laws protecting banks from competition.”

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