Breaking News This Morning ...
Deutsche Bank reports: Deutsche Bank reported a profit of €278 million in the third quarter, compared to a loss of €6.02 billion in the year earlier quarter. Analysts had been expecting another loss. The big German bank said it was making progress on turning around its business even as it seeks to negotiate a reduced penalty with the U.S. Justice Department to close a probe related to mortgage securities. Wall Street Journal, Financial Times, New York Times
Wall Street Journal
Clamping down: A group of Senate Democrats sent a letter to six federal banking regulators urging them to toughen proposed rules on Wall Street pay, saying the Wells Fargo scandal underlines the need to make executives accountable for misconduct. The senators asked for bonus pay to be deferred longer than four years and for clawbacks and pay reductions to be mandatory, not optional. "If Democrats regain a majority in the Senate in the November elections, as many analysts forecast, these lawmakers would have stronger clout to influence policy debates at the powerful banking panel," the Wall Street Journal commented.
In a separate story, the Journal reports Wall Street is "increasingly focused on the battle for control of Congress — and bracing for a less friendly environment if Democrats retake the Senate and give new clout to the party's left wing." "It's not Hillary Clinton we are worried about. It's the influence that the liberals have on her," said Richard Hunt, head of the Consumer Bankers Association. "I am sure there would be more aggressive investigations, and possible witch hunts."
Gathering storm: The auto lending business, already under pressure from higher loan losses, plateauing car sales, looser underwriting and the possibility of higher interest rates, now faces another potential problem: lower prices for used vehicles. "It is the first time since 2008 that prices have fallen by any material amount," said Larry Dixon, director of market intelligence at the NADA Used Car Guide, which is projecting an average 4% drop in car values compared with 2015. "Losses are going to go higher — there's no question about that," an analyst at Fitch Ratings said. Auto loan receivables recently topped $1 trillion for the first time ever.
Commission, not fees: Morgan Stanley said Wednesday it will continue to charge commission on transactions in customer's IRAs rather than levy fees based on a percentage of the client's assets. That is the direct opposite of the approach taken by Merrill Lynch, which is dropping the traditional commission-based sales model in favor of an asset-based fee. "The divergence will be a test of what works best for retirement savers and brokers, who could end up moving their business to firms that better suit their approach," the Journal said.
Go slow on blockchain: Blockchain technology is now all the rage in banking, it seems. "Some think that blockchain could revolutionize banks' core payment and trading systems," saving banks billions in annual costs, the Financial Times writes. But too many unanswered questions remain about the technology, the paper says, warning it shouldn't be rolled out too quickly. "Exploring the possibilities of a technology is one thing but deploying it widely is quite another," the paper says. "Like airplanes and suspension bridges — other systems that depend on public confidence — banks should beware of stripping away redundancies, such as human oversight, that act as a check against catastrophic failure. Regulators must ensure that in the interest of saving money, banks do not take new and ill-understood risks."
Bankers targeted: Although the Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, brought charges against 85 bankers from mid- and small-sized banks and sent 36 of them to prison, it seeks cahnges that would make it easier it to charge heads of big Wall Street firms. The agency, which investigates crime at companies that took taxpayer bailout funds, wants Congress to require bank CEOs and other senior executives to certify each year that there is no criminal conduct or civil fraud going on in their company. "By requiring the executive to take steps to verify that the statement is true, it would give law enforcement a path to hold them accountable, the inspector general's office said in its recommendation to Congress," the paper says.
"Corporate culture should not allow crime and fraud to go unchecked." — Christy Goldsmith Romero, special inspector general for the Troubled Asset Relief Program.