PayPal quits Libra project; HSBC to cut 10,000 employees

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We’re outta here

As expected, PayPal Friday said it is withdrawing from Facebook’s Libra Association, “dealing a blow to the social-media giant’s ambitions to transform financial services. Libra is the brainchild of David Marcus, a former PayPal president who joined Facebook in 2014.”

However, PayPal said it “remains supportive of Libra’s mission and will continue to discuss how to work together in the future.”

“PayPal’s decision is a blow to Facebook and its cryptocurrency ambitions, which are based on the premise that Libra will be controlled not by Facebook but by a broad network of corporate partners,” the New York Times said. “The effort is the most far-reaching attempt by a mainstream company into the world of cryptocurrencies, with Facebook executives having detailed plans for how Libra could become the foundation for a new financial system not controlled by today’s power brokers on Wall Street or central banks.”

Meanwhile, “House lawmakers are ratcheting up pressure on Facebook in an attempt to force chief executive Mark Zuckerberg to testify in the coming months about his company’s plans to launch the Libra cryptocurrency. The standoff threatens to sour the relationship between Facebook and the lawmakers responsible for monitoring the country’s financial institutions. Many members of Congress have demanded that the social-networking giant halt its plans for Libra until their concerns about money laundering, fraud and abuse are addressed.”

Separately, the European Commission “has asked Facebook and the Libra Association to respond to a series of questions on financial stability, money laundering and data privacy risks that could be posed by the project. The commission’s questionnaire is part of a drive by Valdis Dombrovskis, the EU’s financial services commissioner, to determine how projects such as Libra should be regulated in the EU, if fresh legislation is needed, and even whether Facebook’s coin proposal should be allowed to operate in the bloc. It comes at a time of mounting official pressure on Libra to explain to regulators how it plans to set up a digital currency that could be used by 2.4 billion Facebook users.”

This Wall Street Journal podcast explains “why Facebook started the project and what has regulators concerned.”

American Banker also examines what PayPal’s decision means for the Libra project.

Deep cuts

HSBC is planning to cut as many as 10,000 jobs as part of a cost-cutting drive “as its new interim chief executive Noel Quinn seeks to make his mark on the bank. The plan represents the lender’s most ambitious attempt to rein in costs in years. Any job cuts implemented as part of the latest plan would come on top of 4,700 redundancies that HSBC recently announced amid what it described as ‘an increasingly complex and challenging global environment’ characterized by low interest rates, trade conflicts and Brexit uncertainty.”

"Quinn is vying to become the permanent CEO after replacing John Flint on an interim basis in August.”

Financial Times

A matter of preference

The biggest American banks are holding on to a “disproportionate share of cash reserves” at the Federal Reserve because of their own individual “tastes or preferences” for liquidity, and not because of regulatory demands, Eric Rosengren, the president of the Federal Reserve Bank of Boston, said, explaining the recent shortage of funds in the short-term money market.

Breaking in is hard to do

The U.K. “has become a competitive hotbed for digital banking in recent years. However, the struggles of earlier banking “challengers” — from supermarkets like Tesco to other start-ups like Metro Bank — have highlighted the difficulty of breaking the dominance of major lenders, and many industry figures believe there is not enough room at the top for all the digital contenders to succeed.”

Indeed, the challenges at Metro Bank aren’t over. Neither the decision last week by its chairman and co-founder Vernon Hills to resign, nor the successful completion of a previously aborted bond issue that followed, “will secure Metro’s future. Investors’ spirits may lift a little at the latest news. But regulators’ probes continue and markets are braced for lower interest rates for longer and rising loan impairments. And Metro has to pay close to 10% in interest on £350 million. That will constrain earnings.”

Scandal aftermath

“The acrimonious relationship” between Credit Suisse CEO Tidjane Thiam and Iqbal Khan, its former head of wealth management who recently defected to rival UBS, has “had tragic consequences, damaged Credit Suisse’s reputation and made headlines around the world.”

“It has been an intangible crisis: no clients have lost capital; no money has been laundered; no assets have been riskily rehypothecated. But what should have been a mere embarrassment for Switzerland’s second-largest — and arguably most revered — bank has ended up as something far more significant thanks to the particular strains in the insular, but still globally powerful, world of Zurich’s great counting houses that it has laid bare. It is in the lurid — if trivial — detail that the key to the real outrage in Switzerland lies. If the historic essence of Swiss banking was professional discretion and restraint, married to the promise of holding others’ privacy as sacrosanct, then it is hard to think of a scandal more carefully calibrated to upset: a tale of ambition and ego, unseemly public feuding, and potentially unlawful intrusive surveillance.”

On another front, “Credit Suisse’s decision to fight lawsuits over financial crisis-era residential mortgage-backed securities has seen its potential damages almost double, long after most of its main rivals settled their cases. Even after signing a $5.3 billion settlement with the U.S. Department of Justice in 2017, the Swiss bank faces at least a dozen investor lawsuits.” The bank held $681 million in litigation reserves at the end of 2018, but regulatory filings “say it is facing damages in lawsuits that could exceed its reserves by up to $1.4 billion.”

Quotable

“PayPal has made the decision to forgo further participation in the Libra Association at this time and to continue to focus on advancing our existing mission and business priorities.” — PayPal spokeswoman Amanda Coffee, announcing the company’s decision to leave Facebook’s planned digital currency project.

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