Morgan Stanley to cut jobs; big banks making progress on replacing Libor

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Remembering Paul Volcker

Paul Volcker, “who defeated runaway inflation as Federal Reserve chairman in the 1980s, establishing the importance to the economy of an independent central bank, and whose ‘Volcker Rule’ became a controversial element of postcrisis banking regulation in the Obama administration, has died at 92 years old.” Volcker is now synonymous with a provision of the Dodd-Frank law. But his legacy extends well beyond that, American Banker notes. Wall Street Journal, Financial Times, New York Times, Washington Post, American Banker

Moving forward

Deutsche Bank “plans to cut about €100 million in annual costs by streamlining its corporate structure in German retail banking, as chief executive Christian Sewing prepares to face investors on Tuesday. Deutsche is expected to formally announce the decision at a capital markets day on Tuesday where Mr. Sewing is facing pressure from investors to show progress in executing the most radical restructuring in the bank’s history. The revamp, which was unveiled in July, comes at a time when Deutsche is reeling from falling revenues and high costs.”

Deutsche Bank told investors Tuesday that it is “making progress cutting costs and stabilizing businesses weakened from revenue declines” and that its “ambitious five-month-old reorganization is on track,” the Wall Street Journal reports. “We are in line with our plan and even ahead in several areas,” CEO Christian Sewing said.

The bank raised its “medium-term revenue target for its struggling investment bank and now targets an average growth of 2% over the coming three years,” the Financial Times says.

Wall Street Journal

Leaving Libor

Large banks “are making the fastest progress in the transition away from the troubled London interbank offered rate,” according to a study by the law firm Cadwalader, Wickersham & Taft and Sia Partners, a consulting firm. “Global lenders’ greater preparedness stems from their larger resources, greater contact with regulators and experience in adjusting operations for other systemic changes,” the study said. “While regional banks haven’t made as much progress as Wall Street firms, they plan to devote more attention to the transition in the coming year,” the paper says.

“The transition will not be as successful as everyone would like if smaller participants aren’t ready when the time comes,” said Lary Stromfeld, a partner at Cadwalader. “This has got to work across the entire market at all levels.”

Polishing act

Fannie Mae and Freddie Mac are cutting back on some mortgages meant to make homeownership more affordable, such as loans with small down payments and mortgages to deeply indebted borrowers, “their latest effort to rein in risk at the behest of their regulator. The regulator, the Federal Housing Finance Agency, says it wants Fannie and Freddie to be prepared for a possible economic downturn. Tamping down risk could limit their defaults and produce bigger profits, which in turn could help them appeal to potential investors,” as the agency prepares to return the two companies to the private sector, the paper notes.

Financial Times

The cuts keep on coming

Morgan Stanley is planning to cut around 1,500 jobs worldwide “as the Wall Street bank prepares for an uncertain 2020,” the paper reports. The cuts, which account for about 2.5% of the firm’s global workforce, “reflected the lack of clarity on the outlook for 2020, when President Donald Trump’s trade war, the U.S. presidential election and Brexit could all hit banks’ performance.”

“The heaviest layoffs [will] fall on Morgan Stanley’s technology and operations division.” The bank “is not cutting back on tech investments” but “reflect the fact that some activities can now be done more efficiently.”

Separately, Morgan Stanley was fined €20 million by France’s markets regulator for allegedly manipulating the price of French government bonds in 2015.

Soul searching

Swedbank’s new CEO Jens Henriksson has commissioned a “well-reputed external financial consultancy” to do a “cultural assessment” of the Swedish bank in the wake of a money laundering scandal. “One thing I have asked myself, and others, is if Swedbank has a cultural problem?” Henriksson wrote in an internal blog. “When I meet people in the bank, I see dedicated people with a good moral compass. But why has Swedbank over the last 30 years been in several existential crises?”

The bank also announced Monday it is replacing its chief risk officer and its head of Baltic banking. Swedbank is currently is under investigation in the U.S., Sweden, Latvia and Estonia as well as by the European Central Bank “over potential money laundering in its Baltic operations.”

Elsewhere

Showdown Down Under

Australia’s Westpac “faces a showdown with investors at its annual meeting this week, seeking to hold back an avalanche of outrage over a money laundering scandal that includes accusations of enabling child exploitation payments,” Reuters reports. The bank’s chairman, CEO and compliance chief have all resigned since the “bombshell disclosure” three weeks ago. But “investors will likely call for more scalps” at Thursday’s annual meeting “as the company braces for a fine most analysts expect will top A$1 billion ($680 million).”

Quotable

“He believed there was no higher calling than public service. His life exemplified the highest ideals — integrity, courage, and a commitment to do what was best for all Americans. His contributions to the nation left a lasting legacy.” — Federal Reserve chair Jerome Powell, on the passing of former Fed chair Paul Volcker