Mortgage rates drop; activist investor ups pressure on Barclays

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Not going away
Sherborne Investors, Barclays' second largest shareholder, is making a bigger push to get a seat on the bank’s board after it was rebuffed last September. The move is “Sherborne’s strongest warning yet to Barclays to heed its advice to lower debt and shrink its investment banking operation.”

It also “sets the stage for a bitter proxy battle and represents a significant escalation in [Sherborne chief Edward Bramson’s] campaign against the bank. If he is successful, it would mark the first time in recent history that an activist has forced their way on to the board of a big UK-listed bank.”

Out of the World
World Bank President Jim Yong Kim announced his resignation on Monday, more than three years ahead of schedule. His unexpected departure sets up “a potential dispute between the U.S. and other World Bank member countries over selecting the next leader of the world’s largest development-finance institution.” Kim’s resignation, in order to join a private infrastructure firm, leaves the organization “grappling with confusion and uncertainty over its leadership. Mr. Kim’s departure is likely to trigger a debate about whether the decades-long tradition of allowing the sitting U.S. administration to pick the president of the World Bank should continue, given Donald Trump’s deep skepticism of multilateral institutions.” Wall Street Journal, Financial Times, New York Times, Washington Post

Wall Street Journal

Home sweet home
Mortgage rates have quietly fallen to about 4.5%, their lowest levels in the past eight months, “offering a potential boost to the housing market after a rough patch in recent months.” While that is still about 50 basis points higher than a year ago, it's also down from a more-than-seven-year high of nearly 5% in October. "The decline stands to give consumers another shot at obtaining low rates on loans to purchase or refinance their homes, if they can stomach volatile financial markets and still lofty home values.”

She's out
Nellie Liang withdrew her nomination to the Federal Reserve’s board of governors, “a casualty of opposition from the banking industry which feared she would stymie efforts to loosen financial regulation.” The former Fed economist was nominated last September by President Trump “but her nomination immediately met resistance from bank lobbyists and some Republican senators.”

Board shuffle
Wells Fargo said it elected Wayne Hewett, chairman of DiversiTech Corp. and an adviser to private-equity firm Permira, to its board of directors. He replaces Karen Peetz, former president of the Bank of New York Mellon, who said she won’t stand for reelection.

Financial Times

Will it float?
Royal Bank of Scotland took a 25% stake in Loot, a fintech start-up, which "provides a current account and pre-paid debit card with controls and spending insights to help young people save." The investment marks the first official move by Bó, the digital-only bank RBS expects to open this year. “Britain’s banking market is still dominated by a small number of big banks and building societies, but RBS has started several digital initiatives to hold on to its position in the face of growing competition from new rivals.”

Separately, the paper asks just how “truly innovative” fintech companies really are. “While we can't be entirely sure yet, what is observable is that ‘float’ control is turning into one of fintech's most important features,” writes Izabella Kaminska, editor of the paper’s Alphaville section. “What this amounts to is taking control of as much customer money up front as possible, and managing it in the style of a bank, albeit without the regulatory oversight. Small surprise fintech services have figured out they too must base their business models on float control if they are to succeed. On the simplest level, if the only thing fintechs are really bringing to the table is float management, it amounts to a needless layer of complexity and intermediation positioned atop of the underlying banking and clearing system.”

While some former prominent bankers who have joined fintechs “give a glowing account” of their new jobs, lots of others “paint a more nuanced picture where the freedom, adrenalin rush and rapid growth of fintech is tinged with unrealistic expectations, mismatched skill sets, bruised egos and sharp wake-up calls.”

Bracing for Brexit
The European Union Monday proposed stricter oversight and pay rules for investment firms operating in the bloc “in reforms seen as a dry run for relations with the UK’s financial services industry after Brexit. The package of reforms, if agreed with the European Parliament, would set capital standards and closer supervision arrangements for some 6,000 investment companies in Europe that manage securities and derivatives for clients.”

Meanwhile, financial services companies in the U.K. have moved almost £800 billion in "staff, operations and customer funds" to mainland Europe since the Brexit vote, according to consultancy EY. The report “highlights the broad-ranging business ramifications of Britain’s divorce from the EU.”

New York Times

Taking odds
Financial topics that may come to a head in 2019 highlight the Times’ White Collar Watch column. Regarding Goldman Sachs’ involvement in the 1MDB scandal in Malaysia, the bank “has little choice but to reach a settlement. The key question is how much its entanglement with 1MDB may cost the firm. Disgorging the $600 million fee it earned for arranging the bond deals is the likely starting point for any resolution in the United States. That could push the penalty over a billion dollars, with the possibility of even more if Goldman has to reach an agreement with the Malaysian government.”

separately, “as investors have suffered losses, the questions have increased about whether cryptocurrencies will survive as a viable investment class. Without greater government oversight to curb manipulation, the interest of small investors may well dry up.”

Quotable

“We’re right on the cusp of a significant refi event.” — Walter Schmidt, manager of mortgage strategies at FTN Financial, about the recent drop in interest rates.

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