Receiving Wide Coverage ...
RBS Profits Swell, But Not for Long: A big reduction in bad debts propelled Royal Bank of Scotland Group to a profit surge in the first quarter, but the bank says the good times may be temporary. RBS earned £1.19 billion (roughly $2 billion), compared with earnings of £393 during the same period a year ago. However, "RBS warned that costs would likely rise considerably when the bank launches a major restructuring plan in the second half of the year," the Wall Street Journal reports. The Financial Times puts a similar spin on RBS's first quarter, pointing out that RBS ran into another hurdle last week when the agency that manages the British government's stake in the bank opposed its proposal to hike bonus caps to 200% of salary. This refusal put a wrinkle in RBS's attempts to reinvent itself as a "smaller, simpler and smarter bank," according to the New York Times, and will hurt recruitment and retention since RBS's competitors can offer employees more attractive bonuses.
Wall Street Journal
Banks and credit card companies worried about Silicon Valley's attempts to edge onto their turf can cling to a nugget of hope offered by venture capitalist Dave McClure at a Milken Institute conference. It's true that consumers already hooked on Google, Apple and Amazon might be willing to ditch banks for the tech giants' payment services, McClure says, but the regulatory costs associated with the payment industry may yet keep big tech at bay.
People are more willing to put their retirement savings into stocks than they have been since the financial crisis decimated many Americans' nest eggs. "Stocks accounted for 67% of employees' new contributions into retirement portfolios in March," the paper reports. That is the highest percentage for stock investment since March 2008. Fading memories of the market downturn is one factor behind savers' renewed faith, the paper suggests.
MasterCard's brisk business may stumble because of sanctions against Russia. The company's profits climbed to $870 million in the first quarter, a 14% increase from the same period a year ago. But the Journal coverage foregrounds MasterCard's Russian headache. The country is likely to "change its domestic-payments market structure" in response to Western sanctions. MasterCard CEO Ajay Banga told analysts, "What we have in place today does not, I believe, meet all of the new Russian requirements." MasterCard says the changes will have a small effect on its 2014 earnings; the long-term impact is difficult to predict.
Bank of America takes another knock for the accounting error that caused it to misreport its capital levels during a recent stress test, this one courtesy of the FT's Tracy Alloway. Alloway points out that high-frequency trading firm Virtu Finanical and specialty finance company Springleaf Financial also recently discovered inaccuracies in their financial statements. The problem lies in part with the absurd complexity of some financial products, she says. "If the institutions which create these products cannot correctly assess their value, then what hope is there for the rest of us? The risks to the banks of inaccurate accountancy treatment may be measured in varying levels of institutional embarrassment the risks to investors carry a much more tangible cost."
As a matter of fact, BofA's top shareholders are pretty put out by this latest fiasco, the paper reports. Shareholders at Citi, which flunked its stress test, are displeased too. A top 10 BofA shareholder, who sought anonymity, told the paper, "Shareholders and investors can only take so much of these repeated headlines of this sort or legal and regulatory colour thats why the frustration level is increasing. There are other stocks that have exposure to the US recovery, with more transparency and less trouble."
Financial Times editor Lionel Barber suggests that bankers take a hard look in the mirror and clean up their act. Bankers "must reconnect to the community," he said in a speech at the University of Cambridge. "The alternative may not be a living hell, but it will be a prolonged spell in purgatory."
The U.S. bank loan market is getting stopped up because issued loans are taking too long to settle. "The settlement backlog has built up as investors have poured money into the loans market in expectation of rising interest rates. They have now begun pulling money out, and concerns are growing that any rise in loan fund redemptions could make it harder for investment managers to return cash to investors."
New York Times
Lloyd Blankfein takes pride in being one of the last CEOs left standing from the financial crisis, according to a report in Dealbook. The Goldman Sachs head recalled a dinner with fellow survivors JPMorgan Chase CEO Jamie Dimon and Standard Chartered head Peter Sands at a recent charity event; a group of eavesdropping reporters were standing nearby. "If you look in the books if you go check," Blankfein said, "who are still in their C.E.O. jobs from before the crisis?" Wonder how Blankfein would fare on Survivor.