Santander's deposit push; HSBC’s strategic about-face

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Wall Street Journal

Let’s try Plan B

HSBC started the year “with a chief executive poised for growth. It is ending the year with a new boss cutting thousands of jobs, culling clients and putting businesses on the block. The change in approach was triggered by storm clouds in the bank’s two most important markets. Violent antigovernment protests have rocked Hong Kong, while the U.K. economy is being tested by uncertainty over its planned exit from the European Union. For HSBC’s board, the tougher conditions were a wake up-call that it is still too much bank in too many countries.”

The new plan under interim CEO Noel Quinn, who replaced John Flint in August, is to “exit low-growth businesses and ax costs to better compete with international rivals such as JPMorgan Chase and Citigroup.”

Faulty default settings

Online loan calculators on financial websites can be set to persuade borrowers to choose a more expensive loan, according to a study by the Journal of Behavioral and Experimental Finance. “The researchers found that people were almost two times more likely to choose a longer-term loan if their online calculator’s default setting had a five-year loan or longer, compared with participants who had a one-year loan as the default setting on their calculator. Extending a loan even just for a single year can have a big impact on what borrowers end up paying.”

Still on the beat

The Consumer Financial Protection Bureau won $777 million through 22 enforcement actions in fiscal 2018, the most in four years and more than double the $344 million in 12 settlement cases it won for consumers the previous year. “The trend came as CFPB Director Kathy Kraninger approached her first year on the job amid criticism from Democrats that the bureau has been too friendly to the financial industry.”

Financial Times

Ready for takeoff

Santander is preparing to launch a “national deposit gathering platform” within the next year “to attract online deposits in the U.S. that will rival Goldman Sachs’s Marcus offering as the Spanish bank seeks to lower its funding costs. The deposits will be used to lower Santander Consumer’s reliance on more expensive wholesale funding by narrowing the gap between Santander’s $107 billion of loans and leases in the U.S. and its $64 billion of deposits.”

Defense mode

Wirecard, the German payments company that has been accused in a series of articles in the FT of making a “concerted effort to fraudulently inflate sales and profits,” has hired KPMG “to review questions over its accounting practices. The company has categorically denied impropriety.”

Still champions

Last week’s release of third quarter earnings reports by the five biggest American banks shows “that the industry can take a hard punch — from interest rates falling to historic lows — and remain up on its feet. Yes, revenue growth was lower because lending margins were tighter; lower interest rates and a flattening yield curve will have that effect. But even in the thinner air of late 2019, the banks’ business models are working. The big lenders are still collecting deposits, the lifeblood of the industry, at a healthy pace. Loan demand is holding up too. Bankers and bank investors can breathe out, and start to think about whether there are more punches coming.”

Negative on negative rates

The CEOs of two of those banks sounded off on the prospect of negative interest rates in the U.S. “I would not buy debt at below zero,” JPMorgan Chase CEO Jamie Dimon told the annual meeting of the Institute of International Finance, a bank lobbying group. “Never, not at below zero, not in my entire life . . . I would do anything before I would buy debt at negative rates. There is something irrational about it. God, I hope it never comes here.”

James Gorman, Morgan Stanley’s CEO, said at the same meeting: “What Europe is experiencing with negative rates is obviously really bad. Not just for banks but for the economy. … I personally would be more cautious bringing down rates [in the U.S.].”

At the same conference, Germany’s most senior financial regulator “warned of the grave dangers if politicians loosen post-crisis rules to boost growth.” “I’m of course afraid that we are pushed into a new cycle of downward regulation,” BaFin President Felix Hufeld said. “Let's not do that. A little bit of breathing room is fine. [But] it’s detrimental to everybody, both the industry as well as the public good, to do that.”

Succeeding in spite of itself

Facebook’s faltering Libra digital currency “could well prove a trigger for a major reform of the global financial system” even if it fails.

Arrested and charged

Bryan Cohen, a vice president at Goldman Sachs, was arrested in New York Friday on federal criminal conspiracy charges and “charged with insider trading in a scheme that allegedly generated $2.6 million in illegal profits as he tipped off a trader about multibillion-dollar deals involving bank clients.” The Securities and Exchange Commission alleged that Cohen “tipped off an unnamed trader about bids for Swiss agribusiness Syngenta in 2015 by Monsanto and ChemChina, and about Arby’s 2017 takeover of Buffalo Wild Wings in 2017.”

Quotable

“I note these figures not as a measure of accomplishment but to underscore the fact that the bureau continues to appropriately use its enforcement tool.” — CFPB Director Kathy Kraninger, commenting on the amount of money the bureau’s enforcement actions raised in fiscal 2018, the most in four years.

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