Receiving Wide Coverage ...
Deutsche Bank Gets a Trim: After reporting a heavy 6 billion euro loss for the third quarter, Deutsche Bank announced it will cut jobs over the next two years. Deutsche will shed 9,000 full-time jobs, 6,000 external contractors and 20,000 other positions, according to the Wall Street Journal. In total, the bank employs around 100,000 people. The job cuts are part of a plan that the bank called "Strategy 2020," which should save the company 3.8 billion euros, or $4.15 billion, the Journal wrote. But severance costs will be steep – to the tune of between 3 billion and 3.5 billion euros.
Deutsche also plans to leave 10 countries: Argentina, Chile, Peru, Mexico, Uruguay, Denmark, Finland, Norway, Malta and New Zealand, and relocate its Brazilian trading operations elsewhere, the Financial Times reports. Deutsche also said it will reduce its client base in investment banking by half, especially in high-risk countries, noting that 80% of its revenue in this division came from only 30% of its clients.
Additionally, the bank won't pay dividends for two years, the FT writes. Deutsche chief John Cryan said the decision to do so was made in an effort to improve the company's balance sheet. Still, these efforts may not put all of Deutsche's troubles behind it. Officials have told the New York Times that a $200 million settlement could be announced as soon as next week. The settlement would resolve investigations led by the New York Department of Financial Services and the Federal Reserve into the bank's dealings with countries like Iran and Syria. Still, the settlement would not end a criminal investigation, and Deutsche faces additional scrutiny for alleged money laundering in its Moscow Division.
Will A.I.G. Make the Break? In an open letter, activist investor Carl Icahn called for AIG to break up into smaller companies. Icahn, who noted on Twitter that he's an investor in the company, said in his letter the move would help the company to keep costs in line with its competition, according to the New York Times. Fellow billionaire John Paulson has made similar calls for a break-up, though the two men were not working together. Reducing the company's size would also be one way of similarly decreasing the amount of regulatory scrutiny AIG faces, the men argue.
AIG has reportedly enlisted Morgan Stanley to help it navigate its options in light of the calls for it to break up. Officials close to the company told the Wall Street Journal the company believes breaking up may not be the foolproof plan Paulson and Icahn would suggest. Besides being difficult to do, for starters, the officials noted a break-up might not remove AIG's distinction as a systemically important financial institution.
The Journal opines such concerns may be accurate. The paper notes AIG definitely disappoints according to certain metrics. For instance, it currently trades at a 30% discount to book value versus a competitor like Allianz that trades at a 19% premium. But the paper notes the company's property insurance business helps buoy other divisions, so a break up may not provide the growth investors would want.
Nevertheless, AIG might be uniquely vulnerable to such calls. In another take on the news, the Journal argues the reason big banks such as Citigroup and Bank of America have not seen the same criticism is because of the heavy regulation they face post-crisis. Investors can't use their favorite strategies, including calls for better capital returns or ramping up the balance sheet, in part because it would go against regulation. So while Citigroup and Bank of America may also trade below book value, they're likely staying together for now.
Fed Previews December Hike? Well, it looks like the long-awaited rate hike might actually be imminent. The Federal Reserve gave what the Financial Times called "its clearest signal yet" that it will push up short-term interest rates in December. Yes, the rate hike is far from a done deal – but as the paper notes the latent message from the Fed remained far more positive than recent ones. In particular, the central bank removed references to struggling global economic growth, keeping the message focused on domestic concerns.
But the Fed may have also backed itself into a corner by placing so much weight on the December decision. The Wall Street Journal points out that while some viewed the Fed's message as hawkish, federal funds futures showed the chances of a December increase are less than 50%. Such bearish feelings stem from recent global and domestic economic data which are soft at best. Consequently, if the Fed ultimately does not choose to raise rates before year-end, the Journal said, onlookers could take that as a sign the central bank has revamped its strategy – regardless of whether that's the case or not.
Wall Street Journal
HSBC may have its sights set on an international move. The paper reports the bank is considering departing London, in part due to due to the high levels of political and regulatory pressure it has faced in the U.K. Where the bank might go remains unclear. Potential candidates for a new home base include Hong Kong, Shanghai, Paris and cities across the U.S, according to the paper's unnamed sources. This isn't HSBC's first time making such threats though – it hinted at a similar move after new regulations were passed following the financial crisis. Last week, the FT discussed this topic, as Morning Scan reported.
New York Times
The lead defendant in the first U.S. criminal trial over the Libor interest rate scandal took the stand Wednesday. Anthony Allen, a former Rabobank trader, answered questions for 105 minutes. During the cross-examination, prosecutors brought out emails, text messages and recorded phone calls that show traders asking for Libor submissions to be modified for better deals. Allen was grilled on his inaction in the face of fellow traders' manipulating the rate. But he was resolute that his hands were tied: "I couldn't stop him," the paper reported Allen as saying in reference to another Rabobank trader he worked with who has pleaded guilty to manipulation charges.
An op-ed suggests there's an easy fix to the heavy cost the poor face when using payday loans. The solution, according to op-ed author Yale University sociology professor Frederick Wherry: small bank loans. These loans could be payable in installments and would help low- and moderate-income households avoid payday lenders when they need a few hundred dollars to make ends meet. Plus, he notes, there are banks willing to distribute the loans and this plans has far fewer challenges than others floated, such as postal banking. He closes by noting that bringing banks into the realm of such small loans could broaden their audience and make financial services that much more inclusive.