Senate ready to repeal CFPB auto rule; Tax cuts juice bank profits
Earnings: Morgan Stanley’s first quarter profit jumped 38% to $2.67 billion and revenue rose 7% to $11.08 billion.
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Auto lending rule faces ax: The Senate is expected to vote Wednesday to overturn guidance issued by the Consumer Financial Protection Bureau in 2013 that was intended to address alleged discriminatory lending at auto dealerships. On Tuesday, the Senate voted 50-47 to proceed with the legislation; the House is expected to approve its version later.
The CFPB rule is “one of the most controversial policies implemented” by the agency, according to the Wall Street Journal, and has “long [been] criticized as an example of the bureau’s regulatory overreach” by Republicans and industry executives. Wall Street Journal, Washington Post, American Banker here and here
Risky business: Cambridge Analytica, the voter-profiling firm caught up in the Facebook data privacy controversy, was looking to raise money through an initial coin offering as well as promote a digital token for another firm that brought it close to a notorious gangster in Macau known as Broken Tooth.
“The planned coin offering and a broader push into the world of virtual currencies were an indication of Cambridge Analytica’s willingness to expand into risky, new technological realms,” the New York Times says. “But much like its acquisition of Facebook data to build psychological profiles of voters, the new business line also took the firm into murky ethical and legal situations.”
New York Attorney General Eric Schneiderman sent a letter to 13 exchanges that trade bitcoin and other cryptocurrencies to find out what they are doing to protect investors. The letter is part of a program called the Virtual Markets Integrity Initiative whose goal is to “ensure that investors can have a better understanding of the risks and protections afforded them on these sites.”
Wall Street Journal
Lucky or good?: The $2.5 billion that five of the biggest U.S. banks collectively realized in the first quarter due to a lower tax rate is calling into question the quality of their robust earnings growth. “Without the tax savings resulting from the new lower corporate tax rate, Wells Fargo’s earnings would have declined from a year ago instead of increasing, and much of the year-over-year growth at Citigroup and Bank of America would be gone,” the paper says. “Losing the tax bump would have cut the earnings growth of JPMorgan to 28% from 35%; for Goldman, growth would have shrunk by at least a quarter. The new data suggests investors may have to look below the surface of companies’ announced results to get a true sense of how their operations are performing.”
Efficient and safe: Federal Reserve Vice Chairman for Banking Supervision Randal Quarles told Congress Fed regulation “should support and promote the system’s efficiency just as it supports its safety.” Speaking to the House Financial Services Committee, Quarles also called for Community Reinvestment Act compliance reform.
Naysayers unite: Another proxy advisory firm has called for its clients to vote against the re-election of board members of Equifax at the company’s May 3 annual meeting. Institutional Shareholder Services says clients should vote against five Equifax board members, including the chairman. It said the five members, all of whom were on the board’s technology committee, “had clear lines of responsibility for risk management related to technology security” before last year’s massive data breach and failed to “adequately oversee some of the most significant risks facing the company.”
Looking west: Alexandre de Rothschild, the 37-year-old incoming chairman of 200-year-old investment bank Rothschild & Co., is looking to expand the bank’s presence in the U.S. The bank has a small footprint in the U.S. but wants to diversify away from its primarily French and British advisory business. “Clearly U.S. regions like the Midwest and the West Coast offer strong potential for growth,” de Rothschild said. “We are focusing on opportunities in these areas rather than having an ambition to be a giant in New York.”
AML efforts: The European Commission has proposed rules to battle money laundering, including making it easier for law enforcement to share bank data to track terror suspects and other criminals.
Buyer beware: Investors interested in buying stock in Ant Financial, Alibaba’s payments affiliate that was recently valued at $150 billion ahead of a planned initial public offering next year, are advised not to ignore the risks. Ant may have “rewritten the way the world’s most populous country pays for goods and services, boasts more than half of China’s $15.5 trillion payments market and is making inroads overseas,” the paper admits. But “there is no shortage of factors that should give pause to investors. Ant occupies a legal limbo, its founding chairperson is leaving, regulatory scrutiny is increasing and profits are being squeezed by competition.”
“Before investors get excited about the growth of earnings of these companies, they need to look at the sources of that growth. A good portion of that growth is likely to be from taxes.” — Ravi Gomatam, an analyst at Zion Research Group, about the quality of first-quarter earnings at five big banks.