Six living wills have ‘shortcomings’; PE firms buy stake in Amex unit

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Wall Street Journal

Back to the drawing board

The Federal Reserve and Federal Deposit Insurance Corp. found “shortcomings” in the so-called living wills of six of the largest U.S. banks. The banks — Bank of America, Citigroup, Wells Fargo, Bank of New York Mellon, Morgan Stanley and State Street — have until the end of March to address the issues, which “relate to their ability to reliably produce data needed to execute orderly wind-downs,” the paper says.

“Tuesday’s moves, the regulatory equivalent of a slap on the wrist, are less severe than the finding of a ‘deficiency,’ which could lead to more stringent capital and liquidity requirements for the firms,” the paper adds. No banks were found with deficiencies. The regulators found no shortcomings in the plans from Goldman Sachs and JPMorgan Chase.

While “shortcomings” are less severe than deficiencies, they still “raise questions about the feasibility of a firm’s plan,” the Fed and FDIC said.

Stressed no, volatile yes

In the U.K., all of the country’s biggest banks passed the Bank of England’s stress tests, even in the event of a disorderly Brexit. “Importantly, though, investors would be on the hook” in that case, the paper says. “Under the tested scenario, all of the U.K.’s main banks — Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered — would stop paying ordinary dividends. Barclays and Lloyds would also have to convert some additional Tier 1 capital,” the paper adds.

“This is only a test and a no-deal Brexit is possible but unlikely. What is very likely is that [U.K. prime minister Boris] Johnson’s deadline-focused negotiating approach will lead to more volatility in U.K. bank stocks over the coming year — whatever arrangement the country eventually strikes with its key trading partner.”

Buying in

Private-equity giant Carlyle Group and several other large institutional investors, including Singapore’s sovereign-wealth fund GIC, the University of California and Kaiser Permanente, have bought stakes in American Express Global Business Travel “in an equity recapitalization deal that values the company at $5 billion, including debt.” Amex, which still holds a 50% stake in the unit, sold off the other 50% in 2014 “to a group of investors led by Certares LP that invested $900 million at the time. The investment was intended to improve technology and increase its acquisitions in the travel and management space. Amex wanted to make the unit more nimble as it faced increased competition from online travel-booking sites.”

Financial Times

Working together

Denmark’s Saxo Bank and its Chinese majority owner Zhejiang Geely “are setting up a joint venture in China to supply financial and regulatory technology solutions such as trading platforms and robo-advisers to local lenders. The Danish bank, best known for its trading platforms that allow customers to deal in everything from currencies and commodities to equities and derivatives, has been plotting its entry into China ever since carmaker Geely surprised markets two years ago by taking a stake in Saxo that it has since increased to 52%," the paper says. "The 50-50 joint venture will seek to sell Saxo’s technology to Chinese banks and fintechs but is hoping eventually to gain a banking license to offer products directly to local traders.”

Performance counts

Citigroup's Jane Fraser’s October promotion to president “gives her a strong platform to position and prove herself as a successor” to CEO Michael Corbat and “become the first female boss of a major Wall Street bank,” the paper opines. “Her promotion to the number-two job at Citi comes at a critical juncture for the U.S. lender, whose performance has lagged behind that of rivals JPMorgan and Bank of America over the past three years. Investors are pressing for bolder strategic decisions at group level and better performance at its consumer banking division, which Ms. Fraser now oversees.”

More laundering fallout

Another Scandinavian bank has been “ensnared in a large and intertwined money-laundering scandal … that has damaged the reputation of the Nordic banking system.” The Swedish financial supervisory authority said it is investigating SEB, one of the country’s largest banks, over its “governance and control of measures to combat money laundering in conjunction with regulators in Estonia, Latvia and Lithuania. It has already launched a sanctions probe into Swedbank, Sweden’s oldest bank, over similar issues and will announce any punishment in that case by March.”

Climate testing

The balance sheets of the largest banks and insurance companies in the U.K. “will be tested against three different scenarios that stretch out decades under what the Bank of England claims will be the world’s stiffest climate stress tests.” The BoE said it will “scrutinize” how the companies “would cope with more frequent severe weather events such as floods and subsidence, as well as what would happen if there were a sudden fire sale of ‘brown’ assets — those considered detrimental to the environment.”

Strategy reboot

State Street “is scrambling to rethink its strategy” in the exchange traded fund business, where it is the number three player, “in the wake of the acquisition of online broker TD Ameritrade by rival Charles Schwab. TD Ameritrade has been a key retail distributor of ETFs from the Boston-based bank’s State Street Global Advisors asset management division, which is trying to reverse years of declines in market share. That relationship, however, could now give way to more intense competition for customers from Schwab’s own ETFs.”

TD “was where we had a distinct advantage — we were the house brand, if you will, for low-cost ETFs,” State Street CEO Ron O’Hanley told the paper. “I don’t think we will lose because of this, because we are on the Schwab platform, too, but the ability to gain [share] from that alone has probably gone away.”

New York Times

Bubbling?

Europe’s “rock-bottom interest rates meant to power a recovery are fueling a property boom that is creating a new set of problems,” the paper reports. “In some parts of Europe, valuations have already returned to or exceeded levels that preceded the Continent’s debt crisis a decade ago, igniting concerns that the property boom could end badly.”

“The risks are real, because negative interest rates in Europe are cemented,” said Jörg Krämer, Commerzbank’s chief economist. “What’s important for the economy as a whole is to prevent the emergence of a dangerous new bubble.”

Quotable

“It’s already a monster big market and we see it growing significantly. We believe we have a very good opportunity for coming in and helping regulators as well as market participants to obtain better services.” — Kim Fournais, CEO of Denmark’s Saxo Bank, which is setting up a joint venture with its majority Chinese owner to sell technology products and services in China as a possible prelude to obtain a banking license there

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Living wills Stress tests M&A Career advancement Succession planning AML Climate change ETFs
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