Nonbank threat rises; Betting on M&A

Receiving Wide Coverage ...

Crypto update: Despite protestations to the contrary, some big banks “have begun to dip toes in crypto, facilitating trades in bitcoin derivatives on behalf of their fund manager clients,” the Financial Times reports. “And now banks are probing a new frontier: custody. Analysts say that if the banks get it right, they could unlock billions of dollars of investment in crypto from funds required by law to keep assets with a qualified custodian. And hence a whole new world of fees.”

Meanwhile, tether has become the second biggest cryptocurrency after bitcoin in terms of daily trading volume by virtue of its one-to-one relationship to the U.S. dollar, making “it a sort of digital-dollar substitute.” But there’s just one problem. “There isn’t hard evidence the cash supporting it exists. Tether has never produced an audit showing it has the purported reserves. The company that controls tether maintains it has the reserves, yet it has never named the banks it uses to hold these funds, nor said where they are based and regulated.”

Kim Nilsson is the software engineer who helped unearth the theft of $4 billion of cybercurrencies from the failed Mt. Gox exchange in 2014. His “bitcoin odyssey, from an optimistic adherent to a hardened computer sleuth, encapsulates the messy maturing process of cryptocurrencies as their value and use have exploded in recent years. His unearthing of an apparent multibillion-dollar theft and money laundering scheme at the very center of bitcoin’s world shows just how dangerous its largely unpoliced digital wilderness can be for investors.”

Wall Street Journal

Competition grows: Private-equity firms are “aggressively moving into the business of lending to midsize companies,” a business previously controlled by commercial banks. “Fueled by an influx of cash from yield-hungry investors, they are now financing deals banks won’t.” And “the market is poised to grow as firms ranging from private-equity behemoths to smaller outfits angle for more action.”

Banks are also being pinched on the deposit end of the business. As interest rates have increased, online banks have increased their market share to around 6% of deposits from 4% in 2015. That’s largely because they’re “paying nearly 2%, while big banks are only just getting meaningfully above zero. Pressure on traditional lenders to pay more for deposits will keep rising.”

Looking outside: Goldman Sachs has hired Kurt Simon, a veteran M&A banker in media and technology, away from rival JPMorgan Chase, “continuing a hiring spree that has brought more than a dozen outsiders into the Wall Street powerhouse’s upper ranks in the past few months. The hiring push amounts to a bet — a potentially expensive one — that the merger and capital-raising boom will continue. It is a departure for Goldman, which has historically favored homegrown talent.”

Christopher Goodney/Bloomberg

Financial Times

They’re ba-ack: The U.K.’s biggest banks “are gearing up for a fight” in the financial advice and wealth management business, a sector they largely retreated from six years ago following regulatory changes that made it more costly and riskier. “Now, however, the banks are making plans to return.”

Busy as beavers: The U.K.’s Financial Conduct Authority’s “is opening more cases than ever before, with a particular focus on financial crime.” The agency had a record 504 cases open as of April 1, nearly 100 more than at the same time a year earlier.

New York Times

We’re watching: Banks have joined retailers in tracking how online customers use their websites and mobile phone apps. “Some use the technology only to weed out automated attacks and suspicious transactions, but others are going significantly further, amassing tens of millions of profiles that can identify customers by how they touch, hold and tap their devices.”

Quotable

“I would say that credit card defaults are definitely a cause for concern.” — Joe Resendiz, an analyst with ValuePenguin, about rising default rates despite a booming economy.