Bank earnings: JPMorgan Chase beat earnings expectations but missed on revenue forecasts. The bank earned more than $7 billion in the second quarter. Citigroup's profits were off, while Wells Fargo's earnings were better than expected.
Receiving Wide Coverage ...
Flexible Fed: Federal Reserve Chair Janet Yellen defended the Fed’s actions on banks and expressed cynicism about undoing some of the regulation during her testimony before the Senate Banking Committee on Thursday. “I believe we have done a great deal since the financial crisis to strengthen the financial system and to make it more resilient,” she said. When asked whether attempts to roll regulations back might increase the chances of a new crisis, she said, “Some of them, yes.”
“At the same time,” the New York Times reported, Yellen “was carefully conciliatory, repeatedly agreeing that some rules might be too strict, and expressing a general willingness to consider changes. She also reiterated her support for reducing the regulation of community banks, a popular idea among members of both parties.”
Also at the hearing, Yellen gave “the strongest signal yet” that regulators are looking at relaxing the “enhanced supplementary leverage ratio” that some bankers say could encourage them to take on more risk. “Perhaps it is too high relative to risk-based capital requirements,” Yellen said. “It is something where perhaps our regulations had an unintended consequence and we are looking at that carefully.” The prime beneficiaries of a change would be custody banks such as State Street and Bank of New York Mellon.
Turning to Wells Fargo, the chair said, further enforcement action would be taken if “appropriate.”
Changing of the (Van)guard: Vanguard Group has named Mortimer J. “Tim” Buckley, a onetime assistant to company founder Jack Bogle, to replace CEO F. William McNabb III. The change, which will come in January, follows a long period of explosive growth at the company, as investors continue to favor low-cost index funds, which Vanguard pioneered. The company now manages $4.4 trillion in assets, second only to BlackRock. Wall Street Journal, Financial Times, New York Times
Loosening up: Goldman Sachs is loosening its corporate dress code, at least for its technology and engineering staff. The go-ahead to allow employees to wear “totally casual” clothes is an effort “to keep up with hip tech companies,” the Financial Times comments. Still, Elisha Wiesel, the bank’s new chief information officer, cautioned employees to “please exercise judgment in determining when to adapt to business attire as circumstances dictate, particularly if you have a client meeting.”
The loosening up begins at the top. David M. Solomon, the bank’s co-president, has an unusual hobby: performing as a disc jockey. “Solomon’s love of spinning music suggests a youthful, unguarded side that is rare in the wealthy, button-down world of high finance,” the New York Times comments. “It is the sort of pursuit that could inspire guffaws among the executive’s 50-something peers while appealing to a younger generation of Wall Street talent that rejects the industry’s staid culture.”
Wall Street Journal
Rebuttal: Consumer Financial Protection Bureau Director Richard Cordray took strong offense to Acting Comptroller of the Currency Keith Noreika’s suggestion that the CFPB’s new rule to make it easier for consumers to sue banks rather than submit to arbitration to resolve disputes threatened the safety and soundness of the banking system. In a letter to Noreika, Cordray said there is “no basis” for the claim. Cordray was responding to a letter from Noreika which also stated the rule “may potentially decrease the products and services offered to consumers, while increasing their costs.”
What was he thinking?: Peter J. Wallison, a senior fellow at the American Enterprise Institute, finds it hard to understand how President Trump, “who has promised to reduce financial regulation in the U.S., could possibly endorse the Financial Stability Board’s effort to create an even more stringent global system of financial regulation.” In an op-ed column, Wallison says Trump’s signing of a communiqué following last week’s Group of 20 meeting “runs counter to his promises on the campaign trail and in office.”
Freeing John Hancock: Manulife Financial is looking into an initial public offering or spinoff of its John Hancock Financial Services unit. If it proceeds, the Canadian insurance company would be the latest life insurer to try to shed a large part of its business, following MetLife and AXA, “as life insurers continue to struggle with low interest rates and other challenges to the business.”
“The behavior that we saw was egregious and unacceptable.” — Fed Chair Janet Yellen about the Wells Fargo phony accounts scandal, adding that the matter remains under investigation.