Schwab, TD Ameritrade deal announced; Fannie, Freddie guarantees debated
Breaking News This Morning ...
Charles Schwab Corp. said it agreed to buy TD Ameritrade in a stock-swap transaction valued at about $26 billion. Both boards have signed off on the deal. Wall Street Journal, Financial Times, New York Times, Washington Post
Wall Street Journal
“Some of the biggest names in finance” — including BlackRock, Fidelity Investments and PIMCO — have “told the Trump administration that any move to privatize Fannie Mae and Freddie Mac should include an explicit guarantee of the $5 trillion in mortgage-backed securities they issue, which only Congress can provide. The Trump administration, by contrast, says it is willing to move forward without such a guarantee, arguing that it is past time for the government to reduce its role in housing,” the paper reports.
“Though the administration says it wants Congress to act on a sweeping remake of housing finance, it is laying the groundwork to privatize the firms even if Congress is unable to agree on legislation. The administration has said it could support a federal guarantee for Fannie and Freddie securities, but it warned that action to end the companies’ conservatorships couldn’t wait indefinitely.”
SoftBank and Ant Financial have led a $1 billion funding round for Paytm, the Indian mobile-payments startup, “giving it more firepower in a fast-growing but crowded market.” The latest round, which also included T. Rowe Price Associates, values the company at $16 billion.
What goes up …
The price of bitcoin dropped back below $7,000 after climbing above $10,000 last month “as China reaffirmed its tough stance on companies involved in cryptocurrency trading and fundraising” despite plans by the country’s central bank develop its own digital currency. “On Friday, the Shanghai headquarters of the People’s Bank of China and an arm of the local government pledged to continue to target exchanges, and warned investors not to confuse blockchain technology with virtual currencies.”
Europe’s four biggest investment banks — Deutsche Bank, Credit Suisse, UBS and Barclays — “have cut $280 billion of assets from their main U.S. holding companies in the past three years as they withdrew from Wall Street and moved business away from the glare of regulators. The dramatic reshaping of the U.S. operations shows how the banks are tackling their chronic profitability challenges in the country.”
“Since 2016, large foreign banks have been forced to move most of their U.S. operations into intermediate holding companies (IHCs) that are independently capitalized and stress-tested against their ability to withstand future crises. The four European banks have reduced assets in their IHCs by more than 34% in the three years since they first began publishing accounts. At the same time, the amount of capital in the IHCs has increased by almost 12% on average. The combination of higher equity capital and fewer assets further depresses banks’ returns.”
Westpac, the under-fire Australian bank, said it “will close the payments system implicated in one of Australia’s biggest ever money laundering scandals and strip its executives of their short-term bonuses following an accountability review.” The action “followed critical comments from Josh Frydenberg, Australia’s treasurer, who hinted that members of senior management and the board may have to resign” after the bank was charged with 23 million violations of anti-money laundering laws.
“The Westpac board has to be accountable for this breach,” Frydenberg said. “That will obviously involve decisions that they take about senior management, as well as the board.”
Third time the charm?
“Investors are understandably skeptical” about HSBC CEO Noel Quinn’s plan to restructure Europe’s largest bank. “Although the plan will not be unveiled until the bank’s full-year results in February, his intentions are already clear: he wants to rid the lender of its infamous bureaucracy while reducing the amount of capital tied up in the U.S. and Europe, where it makes subpar returns. To do so, he will have to slash thousands of jobs.”
“This is the third time the bank has attempted a big overhaul in a decade, following similar efforts in 2011 and 2015. But returns still lag behind global peers such as JPMorgan despite HSBC’s unparalleled exposure to high-growth markets in Asia, which accounts for about four-fifths of profits.”
TSB, the U.K.’s seventh largest bank, “has come under fire after large numbers of customer [salary] payments were delayed [last week] just days after a report criticized the bank’s handling of an IT project that ended in disaster” last year. The new problem “came at a particularly embarrassing time for the bank, which [last] Tuesday insisted it had recovered and moved on from an IT fiasco that wiped out all its annual profit last year."
On Monday the bank is scheduled “to reveal a three-year strategy outlining its plans to move on from its recent problems and return to growth. The plan is expected to entail a number of branch closures and job losses after the new management team — led by chief executive Debbie Crosbie — has repeatedly warned staff that the lender’s cost base is too high.”
The findings on last year’s IT failure “are parochial. Though painful for customers and the bank’s reputation, [the glitch] caused no systemic damage. Yet bankers around the world would be well advised to pay attention,” the paper says. “The broader lessons about the damage that mismanaged IT could do to the financial system are fundamental.”
“Perhaps the starkest lesson of all from the TSB affair is just how laggardly banks have been in ensuring their boards are capable of overseeing the technology machines that modern-day banks have steadily become.”
Goldman Sachs “announced an initiative Friday to make it easier for employees to be identified by their gender identity, including coaching workers on how to handle meeting new people. As part of phase one of the initiative, employees will also be able to attach flags to their desks that identify them, including as an ‘ally’ or ‘LGBT member.’ Next year, as part of the second phase of the initiative, the company’s internal directory will also allow employees to include preferred pronouns.”
“The structure and significance of the guarantee remains a sticking point given its centrality to the discussion. The guarantee itself means not only deeper, more liquid markets but also cheaper borrowing costs for consumers.” — Isaac Boltansky of Compass Point Research & Trading, commenting on the importance of a federal guarantee of securities issued by Fannie Mae and Freddie Mac if they are to return to the public markets