Editor's note: Morning Scan will not publish on Monday, Jan. 19 in observance of the Dr. Martin Luther King Day holiday. We'll be back on Tuesday, Jan. 20.
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Earnings Postmortem: Bank of America and Citigroup each produced disappointing fourth-quarter results as trading revenue went south and low interest rates curbed potential profits. Taken together with JPMorgan's less-than-stellar earnings, these results suggest the fate of the biggest banks has diverged from trends in the broader American economy, according to the Wall Street Journal. Unemployment is falling and consumer spending is on the rise, but "Federal Reserve policy and a tough post-crisis regulatory environment" hobble banks' earnings even when lending activity looks good. Reuters Breakingviews associate editor Antony Currie argues trading volatility is the least of big banks' problems; their best chance of improving earnings is to cut costs while they wait for an interest rate hike. A "Heard on the Street" column worries Citigroup is falling prey to an overly optimistic mindset as it looks to the year ahead. The bank is gunning for a return on assets of at least 0.90% in 2015, even though it hit a mere 0.39% ROA last year. If Citigroup is serious about that goal, it should consider selling assets, John Carney suggests. The Financial Times' analysis plays it straight.
Swiss Shakeups: It's been a tumultuous week for Swiss banks at home and abroad. The Swiss central bank's decision to ditch the cap on the franc's value against the euro will likely damage UBS and Credit Suisse earnings, according to analysts. Meanwhile, UBS agreed to pay $14.4 million to the Securities and Exchange Commission to settle charges that its dark pool trading practices favored some investors over others. This settlement "was the first penalty to come from several investigations into whether private trading venues operated by big banks adequately disclose how they operate and police predatory trading behavior," the Journal reports. Not to be outdone, Credit Suisse faces a battle in the U.S. over whether it should be allowed to keep advising retirement funds after pleading guilty last May to helping Americans evade taxes. Normally the Labor Department would just give Credit Suisse a waiver and move on, a policy that prompted "many to wonder whether regulators are throwing away valuable enforcement tools and enshrining a policy of too-big-to-bar," according to House Financial Services Committee member Maxine Waters. The department responded to public pressure to crack down on misbehaving banks by holding a hearing before making its decision.
Watch Out for Rodents of Unusual Size: It's still a bit startling to see a Princess Bride reference crop up in news stories about the shuttered online drug marketplace Silk Road. But the true identity of "Dread Pirate Roberts" a character in the 1980s romantic comedy and the chosen pseudonym of the Silk Road ringleader is at the heart of the case against alleged mastermind Ross Ulbricht. Ulbricht's lawyers say prosecutors have the wrong man: the real Dread Pirate Roberts is Mt. Gox founder Mark Karpèles. U.S. authorities initially treated Karpelès as a suspect before pinpointing Ulbricht, according to testimony from an agent with the Department of Homeland Security. "This is probably going to be disappointing for you, but I am not Dread Pirate Roberts," Karpelès tells the FT via email. "The investigation reached that conclusion already this is why I am not the one sitting during the Silk Road trial."
"Universal banks have lost their luster," the paper declares amid mounting public skepticism about the advantages of the megabank model. European banks including Barclays and Deutsche Bank already seem to be getting the message, according to the paper. Citigroup chief financial officer John Gerspach said on Thursday that the bank has already scaled down and appeared to suggest it could simplify more in the future, the paper reports. "The ultimate test is going to be whether the model delivers the appropriate returns on shareholders' equity and continues to deliver for our clients," Gerspach said.