TD gets bonus in Schwab deal; Will there be a yearend credit crunch?

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Editor's note: Morning Scan will publish next on Monday, Dec. 2. Happy Thanksgiving from all of us at American Banker and SourceMedia.

Wall Street Journal

Cleaning up

Toronto-Dominion Bank has “managed to hold onto a valuable perk from its 43% stake in Ameritrade,” which is being purchased by Charles Schwab for $26 billion. “TD, which will own 13.4% of the combined entity, renegotiated a sweep agreement that was an important source of low-cost deposits and margin income.”

Under the deal with Schwab, TD Bank “will continue to collect fees for maintaining uninvested cash in sweep deposit accounts for Ameritrade’s legacy customers until at least 2031.” The bank’s existing agreement with Ameritrade was set to end in 2023. “The sweeps totaled $103 billion at the end of July, according to TD, but Schwab will be able to start reducing the amount by $10 billion a year once the merger is completed, to a floor of $50 billion. The combined entity will also cut the fees it pays TD from the current 0.25% to 0.15%.”

Tight times

Some of the nation’s biggest banks may have less cash to lend at the end of the year, which could set off a lending squeeze tighter than the one that happened last year, the paper is warning. “How much capital top banks must hold against their assets is partly determined by a quantitative assessment of their global systemic importance, or G-SIB score. As a bank’s score rises, its capital requirements jump up in half-percentage point increments. This gives lenders a strong incentive to stay just below key score thresholds. For a bank the size of JPMorgan Chase or Bank of America, being just one point into the next bucket could translate into a sudden $5 billion or $10 billion jump in capital that the bank is required to have.”

Unavailable

The Commodity Futures Trading Commission ordered a Goldman Sachs subsidiary to pay $1 million “to settle charges it failed to obtain and retain recordings of certain phone lines on a sales and trading desk” in 2014 in violation of “swap dealer regulations that require firms to record certain phone conversations,” the paper says.

“The CFTC said it became aware of the issue when it asked the New York investment bank for the recordings as part of a separate investigation. The regulator didn’t provide details about that investigation, but said that Goldman’s inability to produce the recordings impeded the probe. The case illustrates how a technical glitch can cause regulatory headaches down the road.”

Out of business

Gladius Network, “a startup that raised millions by illegally selling digital tokens to investors but escaped harsh punishment after reporting its own misconduct, is calling it quits,” the paper reports. The company, which planned to use blockchain technology to help clients fight off cybersecurity attacks, “admitted that it failed to follow investor-protection laws when it raised $12.7 million in 2017” and was sanctioned by the Securities and Exchange Commission. Gladius said it “ceased operations effective immediately and has filed for dissolution.”

Financial Times

Better pay

The U.K.’s Lloyds Banking Group “is planning to cut the pay of its chief executive by more than £220,000 while spending £20 million on pay raises for the rest of its staff, as the bank moves to address criticism of its generous executive pensions policy.” CEO António Horta-Osório “receives a pension allowance worth 33% of his salary, compared with an average contribution of 13% for the rest of the lender’s 65,000 employees. Lloyds said it plans to give all staff an annual pension contribution equivalent to 15% of their base salary starting next year.”

Addressing risk concerns

French bank Natixis, “which has been shaken by questions over its business model and risk management, has suspended a senior trader” at its New York equity-derivatives business “pending an internal investigation into how he managed and recorded his trades. The news adds to concerns about the bank’s risk management business, which has swelled over the past year. This has led chief executive François Riahi to reinforce risk controls and appoint new risk officers, including in the U.S.”

Mighty mite

Ant Financial, Alibaba’s financial technology and payments unit, “is building a roughly $1 billion investment fund to back start-ups across southeast Asia and India, as looks to expand its reach across the region.”

It's not easy being green

The European Commission “is exploring a proposal to ease European Union banking rules in a bid to spur green investment in Europe.” Valdis Dombrovskis, an EC vice president, told the paper “he wanted to examine a cut to the capital charges imposed on banks’ climate-friendly lending. He said the initiative would encourage banks to finance energy-efficient homes, zero-emissions transport and other green investment by reducing the amount of capital they would have to set aside against such lending.”

But the plan “is likely to stoke a battle with regulators at the European Central Bank, where officials have warned against tampering with rules designed to make bank lending less risky.”

Elsewhere

In the doghouse

Westpac’s bid to supply mortgage loans to an Australian government home-deposit assistance program is likely to be rejected following a major payments scandal that has already cost the bank its CEO and chairman. “The snub highlights the reputational risk now attached to Westpac after Australia’s financial crime watchdog last week sued the lender for allegedly enabling 23 million transactions that breached anti-money laundering and terrorism financing laws, including offshore payments between known child exploiters,” Reuters reports. Mortgages are the bank’s “main income generator,” according to the news service.

Quotable

“I will be watching the data carefully for signs of a material change to the outlook that could prompt me to reassess the appropriate path of policy.” — Federal Reserve Governor Lael Brainard, addressing the New York Association for Business Economics, noting that the Fed’s three recent interest rate cuts “have put monetary policy in the right place for now”

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