Regionals impress in Q4; Fannie, Freddie stocks soar

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Merger
"Chemical Bank plans to merge with and rename itself as TCF Bank to create one of the largest banks in the country, the companies said Monday," the Detroit News reported. "The new entity would be headquartered in Detroit."

"The merger of equals transaction will create a financial services company with $34 billion in total assets and 500 branches across nine states, primarily in the Midwest," the StarTribune reports.

Receiving Wide Coverage ...

The race is on
Kamala Harris’ “history with Wall Street and the banking industry is about to come under scrutiny in a big way as the California Democrat joins what is expected to be large group of candidates seeking to topple President Donald Trump in 2020,” CNBC reports. While the senator “has a history of squaring off with the banking industry,” she “has also been criticized for not going far enough against Wall Street.”

Sen. Elizabeth Warren’s presidential bid “will be driven by her populist assault on big banks, … representing a striking change to the Trump administration’s deregulatory approach to Wall Street. Bank officials worry she would take a more adversarial tack than the Obama administration, which put the financial sector under tougher scrutiny after the 2008 crisis.”

Wall Street Journal

Fingers crossed
Hedge funds stand to reap a huge windfall if the Fannie-Freddie debacle finally is resolved. The common stock of both Fannie Mae and Freddie Mac are up more than 170% this year on speculation about a deal taking the two mortgage guaranty agencies out of government conservatorship. “There is no guarantee a deal to end conservatorship will come to fruition. But recent statements by administration officials indicating the government plans to move soon on taking the firms out of conservatorship have sent shares surging. Should a plan go forward, it would conclude the biggest unresolved legacy from the financial crisis and partly determine whether hedge funds wind up profiting from their wagers,” the paper says.

Moving up
Stacey Tevlin was named the Federal Reserve’s director of research and statistics division, essentially its chief economist. Tevlin, who has worked at the Fed since 1995, succeeds David Wilcox, who recently retired after 30 years at the Fed.

ICOs in the spotlight
Kik Interactive, a Canadian social-media startup, is planning to challenge a Securities and Exchange Commission enforcement action that prevented it from issuing digital coins in 2017 to raise money, “setting the stage for a legal battle that could have broad ramifications for the digital-currency market. A court battle with Kik could help determine the scope of the SEC’s authority to tame the unruly ICO market. A loss for the agency could curtail its efforts to root out fraudulent offerings and give rise to a new crop of ICO scams.”

Financial Times

Well done
The 10 largest U.S. regional banks “surprised industry analysts” with their performance in the fourth quarter, as earnings grew by an aggregate 6%. The “virtually frozen markets for leveraged loans and high-yield bonds” helped the banks, as mid-market companies turned to them for financing.

Raising the ante
Mastercard has swooped in with a higher offer to buy cross-border payments specialist Earthport, “derailing a previous agreement with rival Visa and raising the prospect of a bidding war” for the British company. Mastercard offered £233 million for the company, 10% more than Visa’s bid.

Fun while it lasted
Earlier opening times, instant debit cards for new customers and pet-friendly branches have made Metro one of the most popular banks with its U.K. customers since its launch in 2010, “but it is becoming increasingly unpopular with investors” following last week’s 40% drop in its share price, “the biggest one-day fall for a British bank since the bailout of Royal Bank of Scotland during the financial crisis.” The paper gives six reasons for the bank's dimmer outlook.

Elsewhere

Bad strategy
The 21 largest American banks earned $154.6 billion last year and grew their common equity by a net $2.4 billion, implying that they gave the remaining $152.2 billion to shareholders in stock buybacks and dividends. Yet 20 of those banks saw their share price go down over approximately the same period. What gives?

“The reason is because the banks are, basically, not reinvesting any of the money they earned back into their businesses,” argues Richard X. Bove, chief strategist at Rafferty Holdings. “Am I supposed to invest in a company that cannot find any use for its earnings in growing its business? Is a bank really a great investment if it thinks investors can earn more money than the bank can on bank cash?”

Bad plan
Texas police were able to nab an alleged robber of a BBVA Compass bank branch in Austin by tracking him down through his dockless e-scooter, which he used as a getaway vehicle. After identifying the scooter through surveillance video, Austin police subpoenaed Uber to provide the rider’s identity. The 19-year old was arrested and held on $18,000 bond.

Quotable

Banks exercise too much power in Washington. One of the main things I’ve done is grass-roots organizing to wave the flag and point out what’s going on here and get some political pushback. Otherwise Congress and the administration will just continue to work for the big banks.” — Sen. Elizabeth Warren, D-Mass.

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