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Candidates on Banking: Democratic presidential candidates Hillary Clinton and Bernie Sanders' debate Thursday night in Brooklyn touched on how to best control the banking industry. While Clinton said she would remain faithful to the Dodd-Frank financial overhaul law, which requires banks to develop credible bankruptcy plans for themselves or leave it to regulators to cap the size of the firm, Sanders said fraudulent practices on Wall Street are enough for him to break them up, if elected – pointing to the $5.1 million settlement deal Goldman Sachs inked with the U.S. government this week after admitting to misleading investors. He also noted the failure of five of the biggest banks’ “living wills” to meet “credible” standards to back his position. Wall Street Journal, New York Times
Consumer Banking Rises: While oil and gas prices are weighing heavily on commercial loan portfolios, banks have reported good news out of consumer banking units so far this earnings season. But instead of counting on U.S. consumers to continue growing that business, industry executives are instead determined to remain prudent. Bank of America, for example, said it could expand its credit card business without loaning to anyone with less than stellar credit. B of A, JPMorgan Chase and Wells Fargo all reported better-than-expected first quarter earnings this week, despite their decrease in profits. Although they’ve adopted a glass-half-full attitude toward their results, the Times says, their reports emphasize that 2016 will be another tough year for the industry’s biggest banks as they struggle to increase their profit and revenue in a dreary economy with tighter regulation. Wall Street Journal, Financial Times
Wall Street Journal
Regulators are set to unveil updated rules on Wall Street executive bonuses during a public National Credit Union Administration board meeting Thursday. The changes, five years in the works, would require banks to hold back executive bonuses for longer than the three years it does currently, though it is still unclear how long they will be required to retain the bonuses.
IBM cybersecurity researchers have discovered malicious software called GozNym that made customers of 22 U.S. banks victims of a $4 million cybertheft earlier this month. The malware targets customers with business accounts as well as credit unions and “popular” e-commerce platforms (normally the target is the bank itself or its employees). IBM said it has notified the target institutions but did not identify them.
Cannabis companies in the U.S. are becoming increasingly interested in going public but are having trouble finding Wall Street advisors and raising capital. MassRoots, a social media site for the drug, has applied to list its shares on the Nasdaq; Terra Tech which operates dispensaries, is planning to do the same. “We still have a hard time getting banks,” said Derek Peterson, Terra chief executive. “I have to imagine that the Nasdaq or one of those larger exchanges is going to want to see some change from a federal regulatory standpoint or they’re going to want to see a company that has large scope." “In order to maximise the return to our shareholders, it would be inconceivable for us to go public until prohibition ends in the United States,” said Brendan Kennedy, chief executive of Privateer Holdings (whose portfolio boasts “the official Bob Marley cannabis brand”).
New York Times
In light of regulators’ rejection of five living wills this week, the Times analyzes rgulators' tendency to “mess with bankers’ minds.” Regulators were deliberately vague about what exactly was needed to receive passing grades, thereby motivating the banks to stay on their toes, the paper claims. The conditions assumed in the test and the things the regulators look for, teh Times notes, can change at any point. The article says this is an effective tactic for financial regulation, citing economist Hyman Minsky’s observation that stability gives rise to instability, and while regulation is sometimes necessary to curb excessive behavior, bankers have had a tendency to skirt the rules anyway.
Abandoned deals in the U.S. have exceeded newly signed deals so far this year, largely the result of a regulatory clampdown. That’s $340 billion in mergers that have been withdrawn, compared to $282 billion of newly signed deals. Bankers say M&A activity is the best way for companies to jump start their businesses in a dreary economy, but greater uncertainty around what regulators in Washington won’t approve has caused a halt in activity. “The gargantuan deals, they’re harder; there’s no question in my mind,” said Robert A. Profusek, head of Jones Day’s global mergers and acquisitions practice. “The government has been tougher, but they would say: ‘That’s because you guys have been jamming these giant deals at us. What do you expect us to do?’” However, he added, “I wouldn’t call it a day yet on the M.&A. wave.”