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Earnings Update: Morgan Stanley also had a difficult first quarter, but like its competitors the downturn was less substantial than expected. Net income for the quarter was $1.3 billion, down from $2.39 billion in last year's first three months. Again, like other banks, Morgan Stanley’s woes trace back to a dip in profits from its debt-trading business. Investment banking revenue also fell. Citigroup, which reported its earnings on Friday, looks much different than it did roughly 20 years ago, when it became the model of a megabank, according to the New York Times. Today, it’s clear how the bank has shed in branches and business lines, even while politicians talk of the need to breakup banks. But despite the progress Citi has made – also evidenced by its scores on the living will and stress tests – the bank’s earnings remain depressed. And because of all the cost-cutting already completed, more belt-tightening is not really an option to increase profit. "Its big impediment is a legacy of the crisis: tax breaks from all the losses Citi suffered," the Times says. "The bank currently has around $30 billion of capital tied up in these deferred tax assets. The only way to get rid of them is to earn money that can be applied against them." Another area where banks like Morgan Stanley and Citi can hold out hope: interest rates, but not necessarily for the reason you think. The volatility in rates overall has created stronger demand for the banks’ rate-trading businesses.
Iberian Conflict: Spain’s Caixabank is making a second attempt to buy Portugal’s Banco BPI, and the Barcelona-based company expects the second time will be the charm even though it offered a lower price than in the previous try. Caixabank has been battling with fellow BPI shareholder, Angolan billionaire Isabel dos Santos, over the Portuguese bank. The stakes are high because BPI will face a fine from the European Central Bank if Caixabank and dos Santos don’t resolve their dispute, but talks fell through between the two over the weekend. The Spanish bank’s power had been stymied in the past by a cap put in place by the government over voting rights – but the country’s legislators chose to scrap that limit in large part to make a deal possible, But they weren't happy about doing so. For many lawmakers, Caixabank is yet another Spanish bank taking over a Portuguese peer. But even though the Spanish companies are buying up struggling banks, Portuguese lawmakers resent relying on the Spanish.
Wall Street Journal
The U.S. government in launching an investigation into corruption in international soccer, and Citigroup is one of the companies on the hot seat. The investigation has reportedly shifted its focus to sponsors, broadcasters and banks that may have facilitated the corruption, according to the paper’s sources. Some of the companies may have been involved in wrongdoing, while others are merely sought for fact-finding. Other banks implicated include HSBC, Standard Chartered, Credit Suisse, UBS and JPMorgan Chase. Documents reviewed by the paper note HSBC, Citi and Credit Suisse handled transactions worth millions of dollars for an Argentinian marketing firm whose chairman paid bribes to get media rights. Information from the Panama Papers also implicated the sport and its global ruling body, FIFA.
The Federal Reserve had to file a correction as a result of “a drafting error.” The regulator revised its letter to Morgan Stanley filed with the Federal Deposit Insurance Corp. regarding its living will. The letter included a sentence referring to “a deficiency,” when the Fed had actually signaled two deficiencies in the bank’s living will. While the Fed contends the change had no impact because it had spelled out the other deficiency, the paper suggested the error would draw some scrutiny given the irony of the situation.
Charlotte Observer: Wells Fargo is facing some backlash over its plans to initiate paid parental leave (detailed here). Some employees are upset by the start date for parental leave, June 1, since employees due before then cannot access the new benefit. Wells Fargo, meanwhile, says it doesn’t plan to change the start date because it needs the time to roll the plan out.
Forbes: The popular music festival Coachella has become a mobile wallet mecca. The festival has gone cashless and cardless. It partnered with Square to provide point-of-sale services that accept mobile wallets including Apple Pay, Android Pay and Samsung Pay. The change reflects an overall trend in the music festival industry, which has already seen other festivals move toward mobile payments. Those festivals, though, largely relied on wristbands equipped with radio frequency identification (RFID) technology.
Bloomberg: HSBC’s chief executive Stuart Gulliver will step down in two years as the U.K. bank seeks to overhaul its executive slate. The bank is working to identify potential internal and external candidates, according to the report. The bank last month said it would name a new chairman to succeed Douglas Flint next year. HSBC reportedly wants that person in place before beginning the search to replace Gulliver, so he or she can participate.