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Morgan Stanley not satisfied; lawmakers demand more answers from Dimon

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Receiving Wide Coverage ...

Raising the bar

Morgan Stanley, the last of the big American banks to report fourth quarter earnings this week, “posted record annual revenue and profit and set financial targets higher,” the Wall Street Journal reported. The bank reported fourth quarter earnings of $2.2 billion on $10.9 billion in revenue, both of which beat expectations. For the full year, it earned $9 billion on a record $41.4 billion in revenue.

But the bank “isn’t taking a record year lying down,” the Journal added. “In a strategic update, the bank said that it aims to achieve a return on its tangible common equity ratio of 13% to 15% over the next two years, and aspires to a 15%-to-17% return beyond that. Its return was 13.4% in full-year 2019, supported by its highest-ever annual revenue and net income.”

“The longer-term aspirations are based on the bank starting a ‘new chapter’ in wealth management as well as continuing to improve efficiencies,” the Financial Times said. “We have meaningfully and with intent transformed this business into what it is today,” CEO James Gorman told analysts. “The objectives listed here, assuming normal market conditions, should result as a natural consequence.”

Bank of New York Mellon, meanwhile, had much more modest aspirations, as it “warned investors that its expenses may rise more than expected this year,” which led to a nearly 8% drop in the bank’s stock price even though its fourth quarter profit beat analysts’ expectations.

“On a conference call with analysts, BNY Mellon signaled that costs could rise by as much as 2% in 2020. The forecast disappointed investors who hoped cost-cutting would do more to offset continuing technology investments, leading some to question whether BNY will meet earnings estimates for 2020.”

Wall Street Journal

Digital greenbacks

J. Christopher Giancarlo, the former chairman of the Commodity Futures Trading Commission “is setting up a think tank to promote the idea of digitizing the U.S. dollar.” Giancarlo, who is known as “Crypto Dad” for his embrace of cryptocurrencies, “said he was creating the nonprofit Digital Dollar Foundation to study converting the dollar into a fully electronic currency based on blockchain, the technology that underpins bitcoin. The U.S. risks losing the advantages it enjoys from having the dominant global currency if it falls behind rivals such as China, which is working on creating a digital yuan,” Giancarlo warned last year.

“Digitizing the dollar could speed up the processing of financial transactions, while giving officials better tools to go after money launderers. But such a shift raises thorny policy issues, including the future of financial privacy in a world in which all transactions can be tracked electronically.”

Financial Times

More competition

Two years after the launch of Open Banking by the Competition and Markets Authority, more needs to be done to create more competition in the U.K.’s consumer banking business, the FT says in an editorial. “Competition in the retail sector remains poor. Consumer trust in banks has risen since the crisis but only a small percentage of those with accounts tend to switch banks. The number of ‘challenger banks’ has risen, but they have struggled to gain meaningful market share. And while millennials are more likely to open an account with a digital bank, they are still reluctant to use them as their main bank account.”

New York Times

Demanding more

A group of Democrat senators and House representatives plans to send an email Friday to JPMorgan Chase CEO Jamie Dimon asking for more information about the racial makeup of its financial advisory business. “Last month, five Democratic senators and two Democratic congressmen sent letters to Dimon seeking a detailed explanation” of alleged episodes of racial discrimination against both customers and employees at the unit “and an accounting of the bank’s plans to address black employees’ discrimination complaints.”

The bank “disclosed this week that less than 5% of its nearly 3,700 financial advisers are black and said it still had work to do to improve diversity in its ranks.” But the lawmakers “say the bank’s response was inadequate” and “will offer JPMorgan a second chance to respond to their questions by Monday.”

Quotable

“Even if you have identified who has responsibility for what controls, you’re still outsourcing your services and your control of that data, and the firm is still going to be responsible.” — Salvatore Montemarano, a senior examiner at the Securities and Exchange Commission, one of several federal financial regulators who said banks will be responsible for any data breaches at cloud providers they may use.

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