Breaking News This Morning ...
Earnings: JPMorgan Chase
Receiving Wide Coverage ...
Earnings Season Begins: As banks head into earnings season, an air of investor pessimism pervades. Banks' shares have fallen more than 5% recently and the KBW Nasdaq Bank index is down almost 20% from its most recent peak, according to the Wall Street Journal. Weak capital markets are likely to have hampered fixed income, currency and commodity returns. And the December rate increase courtesy of the Federal Reserve was probably too late to give a true boost to net interest margins. But in the Financial Times' view, the fixation on double-digit returns is misguided, regarding Barclays and other European banks that have struggled to meet investors' desires since the financial crisis. Changes to debt-to-equity ratios would add some safety, but doesn't give investors what they necessarily want. Investors likely ignore the fact that capital regulations have left them unable to really take on the riskier endeavors that would offer pronounced returns. But if JPMorgan Chase's earnings – which saw a jump in profit thanks to a fairly successful reining in of expenses – are any indication, the fourth quarter may tell a more pleasant story of banks' fortunes. Be sure to watch American Banker throughout earnings season for coverage of the industry's fourth quarter results.
Government Questions Luxury Real Estate: The Treasury Department said Wednesday it will begin identifying those who engage in all-cash purchases of luxury real estate. The Treasury's Financial Crimes Enforcement Network now requires title insurance companies to assist them in ascertaining who purchased luxury properties in New York City and Miami-Dade County, Fla., with cash, the Washington Post reports. The temporary order is part of a wider effort at the Treasury Department to address money laundering through real estate. The concern is that many of these transactions happen through shell companies, which can shield the true identity of the purchaser and their reason for buying the property. The initiative was allegedly inspired by a New York Times series that described how foreign buyers used shell companies to seek safe havens for their money.
Cruz's Borrowing Blues: Sen. Ted Cruz, R-Texas, may now have borrower's regret. A New York Times investigation found the senator did not disclose two loans he and his wife Heidi obtained from Goldman Sachs, his wife's employer, and Citigroup. The loans, which totaled up to around $1 million, appear to have played a big role in the couple's funding of Cruz's Senate campaign. Former Federal Election Commission officials told the Wall Street Journal candidates must disclose the source of loans put toward a campaign. Cruz says he properly disclosed the loans, but according to FEC document he did not specify the source of his $1 million in personal funds used. Neither bank is being accused of any wrongdoing in the matter. Cruz's personal funding of his campaign has been a part of his stump speech, helping to characterize him as the scrappy underdog.
Wall Street Journal
With MetLife hedging its bets and looking toward spinoffs to shed its systemically important designation, the spotlight has shifted to the largest banks. Observers are now beginning to question whether the country's largest banks should pursue a similar course and became much smaller. Of course, some banks have already shrunk a size or two – since 2007 Citigroup's assets have fallen to $1.81 trillion from $2.18 trillion as it shed units both risky, like subprime lender OneMain Financial, and safe, like wealth management firm Smith Barney. And CIT saw it shares rocket after it announced plans to shed operations rather than become the first intentionally SIFI-designated bank. But while investors and government officials alike may favor such an approach, it's yet to be seen whether breaking up a bank would be a winning strategy.
U.K. regulators are cracking down on bankers who abandon ship when times get tough. A common strategy among top bankers has been to join a rival bank and get them to buy out any unpaid bonuses to evade responsibility for wrongdoing at their previous employer. The Bank of England is aiming to close this loophole and require new employers to punish such employees as their old employers would have. The move is expected to gain favor with investors, since it'll help to stop banks from rewarding either negligent employees or wrongdoers.
Spain's biggest retail lender is unveiling a mobile-only banking service. Caixabank on Thursday will launch a new banking service called imaginBank, which will be cheaper and only available through a mobile app or social media. The bank aims to bring in 500,000 customers to imaginBank by the end of 2017, mainly in the target age range of 18 to 35. ImaginBank will offer current accounts, transfer and contactless digital payments. The bank will also offer loans of up to 15,000 euros (more than $16,000), but will not provide mortgages or credit cards. Caixabank follows fellow European bank BNP Paribas, which recently launched digital bank Hello Bank, in attempting to launch a separately branded digital bank rather than focus innovation on its main, existing brand.
New York Times
Goldman Sachs has thrown its support behind a proposed new stock exchange – with a catch. In a letter to the Securities and Exchange Commission, the bank said it supports Investors Exchange (IEX) in its bid to become a new exchange, somewhat conditionally. IEX claims to be more investor-friendly because it aims to root out high frequency trading. IEX says it will delay the sharing of buy and sell orders made on it by 350 microseconds to slow trading. The problem with that, according to Goldman Sachs and rival exchanges, is IEX does not plan to delay information on orders made on other exchanges. That information could benefit the broker-dealers that use IEX and throw off the market structure, according to Goldman Sachs.