Next step in Libra battle; bank stock rally fizzles

Wall Street Journal

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Facebook CEO Mark Zuckerberg is scheduled to testify alone before the House Financial Services Committee on October 23 about the company’s “impact on the financial services and housing sectors,” mainly its proposed Libra digital currency project.

David Paul Morris/Bloomberg

“Since the project was announced, it has received a steady stream of criticism from lawmakers in the U.S. and other countries based on Facebook’s prior missteps in data privacy and skepticism that the company could prevent Libra from being used to launder money.” Committee Chairwoman Rep. Maxine Waters D-Calif., “and other Democrats have called on Facebook to abandon plans to implement Libra,” while Zuckerberg “has said Facebook wouldn’t move forward with the project in the U.S. until it had satisfied regulatory concerns.”

“Waters is likely to bring up a proposed bill aimed at keeping big technology companies out of financial services,” American Banker reports. “The legislation would prohibit companies like Facebook from being registered, chartered or licensed as a financial institution.”

Fall colors

September’s rally in bank stocks appears to have been a one-month affair, as last month’s gains have been mostly erased already this month, “hurt by bets on lower interest rates and expectations for a turbulent earnings season.” The KBW Nasdaq Bank Index of large bank stocks is down nearly 5% so far this month, compared with a 1.9% decline in the S&P 500.

“Driving the declines for shares of banks is a synchronous slide in global interest rates,” which “tends to hurt net interest margins of lenders. Economic uncertainty and market volatility have also limited big deals and activity on Wall Street trading desks this year. Investors are also closely monitoring moves in bank stocks ahead of the busiest part of third-quarter earnings season next week. The S&P 500 financials sector is one of the few groups expected to post declines in both profit and sales from a year earlier.”

Financial Times

No more free lunch

UniCredit, Italy’s largest bank, said it plans to start charging retail customers with large deposit accounts next year “in an attempt to offset the European Central Bank’s negative interest rates.”

“Any negative rates would be passed on to clients with deposits well above €100,000,” CEO Jean Pierre Mustier said. “Negative interest rates are already common for corporate clients. However, Mustier’s comments suggest more widespread negative interest rates at UniCredit.”

Off the hook

Barclays former CFO Chris Lucas “would have been criminally charged with fraud over the bank’s two emergency fundraisings from Qatar during the 2008 financial crisis had he not been too ill to stand trial,” prosecutors told a London jury hearing fraud charges against three other Barclays senior executives who allegedly tried to avoid a government bailout and save their jobs. Prosecutors said the former finance chief “took explicit responsibility” for the content of each capital raising prospectus and “may be regarded as directly making a false representation” in raising the money.

Foreign affairs

The Federal Reserve is scheduled to announce Thursday “that it has decided against forcing U.S. branches of foreign banks to hold a minimum level of liquid assets to protect them from a cash crunch, a move that will benefit the troubled Deutsche Bank more than any other.” The Fed’s decision “is part of a package of measures designed to shake up how international banks are regulated in the U.S., the latest in a series of steps under the Trump administration to rewrite the rules put in place after the financial crash.”

Elsewhere

Libor labors

“Replacing Libor is proving expensive and tricky with concerns that, if mishandled, it could trigger credit market confusion and waves of lawsuits,” Reuters reports. “The slow progress highlights the challenge banks and borrowers face as regulators attempt to end the use of Libor.”

“With no obvious alternative, some countries are adopting their own benchmarks. The United States is leading the way with a booming trade in derivatives linked to its new SOFR rate, while the European Central Bank started publishing ESTR, its new interest rate benchmark, earlier this month. In Britain, professional investors such as hedge funds and pension insurance clients are also already writing and trading derivatives contracts linked to Sonia.”

Quotable

“Mark looks forward to testifying before the House Financial Services Committee and responding to lawmakers’ questions.” — A Facebook spokesman commenting on CEO Mark Zuckerberg’s scheduled appearance before the committee on October 23 to address concerns about the company’s planned Libra digital currency