Stress test recap; Payments deal near
Receiving Wide Coverage ...
Open the checkbooks: Thirty-four of the 35 largest banks passed the Federal Reserve’s annual stress tests, with only Deutsche Bank’s U.S. unit failing due to “widespread and critical deficiencies.” The others were cleared to raise their dividends and share repurchases, except Goldman Sachs and Morgan Stanley, which were ordered to hold their payouts at current levels. Wall Street Journal, Financial Times, New York Times, American Banker
Goldman and Morgan Stanley were prevented from raising their payout levels because their initial proposals would have resulted in capital levels falling well below regulatory minimums during a financial crisis. The results are “an embarrassing setback” to both banks, although not nearly as bad as Deutsche Bank’s outright failure, which will limit the bank’s U.S. unit from sending profits back to its German parent.
Wells Fargo’s passage “is a win for the bank,” which said it will raise its third quarter dividend to 43 cents a share from 39 cents. It also plans to buy up to $24.5 billion of stock through the second quarter of 2019, more than double its previous repurchase plan.
Bank of America plans to increase its annual dividend by 25% and buy back about $20.6 billion of stock.
JPMorgan Chase said it will increase its quarterly dividend to 80 cents from 56 cents and raise buybacks to more than $20.7 billion over the next year.
Citigroup also said it will raise its dividend and buybacks.
But all this good news isn’t translating into higher bank stock prices. The reason? A flattening yield curve, which is trimming lending margins.
End of the road: Visa and Mastercard are reportedly close to settling a long-running and contentious antitrust lawsuit brought by retailers over the interchange fees the merchants pay to accept credit and debit cards. Under the settlement, the two payments networks and several banks would pay about $6.5 billion to the retailers, who allege that the networks and banks have colluded to inflate those fees. Wall Street Journal, Financial Times, American Banker
Misbehaving: A former manager at Equifax is facing civil and criminal insider-trading charges, claiming he tried to profit from last year’s data breach at the credit bureau. The Securities and Exchange Commission said Sudhakar Reddy Bonthu, a former software engineering manager at Equifax, made $75,000 by trading on nonpublic information he received while creating a website for consumers whose personal data was compromised by the breach. He also faces criminal charges from the U.S. Attorney’s Office in Atlanta, where Equifax is headquartered. He is the second Equifax employee to be charged with insider trading before the breach became public knowledge. Wall Street Journal, Financial Times, New York Times
Wall Street Journal
Cashing in on crypto: A Denver-based startup called Salt has created a lending platform to enable cybercurrency millionaires to cash in their profits. The company “matches borrowers with lenders that provide high-interest loans backed by digital currencies. Clients transfer their digital holdings to an account overseen by Salt, which keeps the funds as collateral in exchange for U.S. dollars. When the loan is repaid, Salt transfers the digital currency back to the borrower.” Platforms like Salt’s “could ultimately unleash the billions of dollars of value trapped in cryptocurrency into conventional markets.”
The mail never stops: Nonbank lenders are flooding mailboxes with solicitations for personal loans. Mail volume from 10 large nonbank lenders totaled 368 million pieces last month, up 41% from a year earlier. “We believe mail volume data is an important barometer of competitiveness, particularly in personal lending space where direct mail volume has seen an increasing trend over the past few years,” Credit Suisse analyst Moshe Orenbuch said.
“The largest banks have strong capital levels, and after making their approved capital distributions, would retain their ability to lend even in a severe recession.” — Randal Quarles, the Fed’s vice chairman for supervision.