Otting makes it official; Morgan Stanley's Gorman: Hold the stock buybacks
Editor's note: Morning Scan will not publish on Monday, Memorial Day.
Wall Street Journal
Please, take our money
Europe’s recovery is being imperiled by banks that are “too scared to lend,” the Journal reports. “The European Central Bank is offering banks trillions of euros in ultracheap money. Governments are further sweetening the deal and are on the hook for most of the loans that turn sour. European companies are particularly dependent on bank lending, unlike in the U.S. where capital markets are relied upon much more heavily.”
“But evidence is mounting that the effort is stuttering.” In Italy, for example, banks have processed and approved requests for around €13 billion in loans, far below the €300 billion the government has made available. “For banks, the problem is simple: No matter how much money is thrown at them by governments, there is a limit to how much risk they can take.”
Meanwhile, the Bank of Japan said it would lend commercial banks the money to make no-interest, no-collateral loans to small and midsize businesses. The loans from the BOJ would not only be interest-free, but “the banks would receive 0.1% interest on their deposits at the central bank. Normally those deposits would earn zero interest or minus 0.1%.”
Down, but not out
Tom Blomfield is stepping down as U.K. chief executive of Monzo, the digital bank he co-founded, but will remain as president. TS Anil, the bank’s current U.S. CEO, will take over Blomfield’s role while retaining his own.
“The move reflects the growing headwinds facing the challenger bank, which was launched in 2015 and went on to double its valuation in a 2019 fundraising to just over £2 billion,” the FT said. “However, plans to raise money from new investors this year have been hampered by the coronavirus crisis, while the lockdown and steep drop-off in international travel have also caused a fall in transaction fees.”
No to negative rates
U.K. banks are balking “at the prospect of negative interest rates, saying the policy would slash their earnings and limit their ability to absorb an expected torrent of coronavirus-related loan losses. The Bank of England’s admission this week that it was eyeing negative rates for the first time in its 324-year history has caused deep concern in the sector. Such a move would narrow lenders’ net interest margin — the difference between what they charge borrowers and pay out on deposits — and depress already fragile profitability in an industry that has struggled to recover from the financial crisis.”
As expected, Joseph Otting announced Thursday that he is stepping down as comptroller of the currency, effective May 29. Otting’s deputy, Brian P. Brooks, will take over on an acting basis.
“Otting did not offer a reason for his departure, which comes halfway through his five-year term as comptroller of the currency,” the Post said. But “Otting appeared to chafe at the confinements of Washington and was often at odds with Democrats on Capitol Hill. His chief accomplishment will probably be finalizing a sweeping overhaul of the Community Reinvestment Act, which Otting often called his top priority at the OCC.”
Brooks joined the OCC in March as chief operating officer, American Banker’s Brendan Pedersen notes. “He is a lawyer and former banker who came to the OCC from Coinbase, a digital cryptocurrency exchange platform. Previously he was executive vice president and general counsel at Fannie Mae.”
Give it more time
Morgan Stanley CEO James Gorman told the bank’s shareholders on Thursday “that it is too early for him or anyone on the board of directors to consider reinstating the bank’s share buyback program,” Reuters reported. “Gorman, speaking at the bank’s annual meeting, said he does not anticipate resuming share buybacks until the bank is certain the economy is on more steady footing. The current suspension is in place through at least June 30.”
Morgan Stanley, along with seven other big banks, “voluntarily suspended their share repurchases in mid-March to preserve liquidity during the novel coronavirus pandemic to lend to individuals and businesses in need.”