The changing metrics of credit; HSBC wants out of France

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Zero or less

President Trump jacked up his criticism and name-calling of Federal Reserve officials, referring to them as “boneheads” for failing to lower interest rates to “ZERO, or less,” in his latest tweet storm. Lower rates, he said, would allow the government to reduce interest costs. He also called for the government to issue longer term debt.

“Given that the Federal Reserve is presiding over a strong economy, it is unlikely to acquiesce,” the New York Times said. “The Fed is expected to make a modest quarter-point cut at its meeting next week as it tries to guard against growing uncertainties, lowering its policy rate to 1.75 to 2%. But it is also unclear whether the Fed could practically and successfully use negative rates to stimulate the economy.” Wall Street Journal, New York Times, Washington Post, American Banker

Wall Street Journal

Rethinking credit

Companies including Goldman Sachs, Ally Financial and Discover Financial Services are considering a variety of new metrics when making lending decisions, “like whether applicants shop at discount stores, subscribe to magazines or pay their phone bills on time.”

“The changes are an about-face for many banks, which have spent much of the decade since the financial crisis chasing mostly ultra-creditworthy customers. But that pool is only so big.” So banks are reconsidering the 53 million Americans who don’t have credit scores and the 56 million with subprime scores.

Adieu

HSBC is planning to sell its French retail bank “in one of its first strategic actions under new interim Chief Executive Noel Quinn. The potential disposal of the money-losing French unit — which has around 300 branches and 800,000 customers, and 2% market share — is part of a longer-term effort to shed businesses where the bank lacks scale or strategic need,” the paper says. Since 20111, HSBC “has exited more than 100 businesses and reduced the countries in which it operates from 87 to 65.” A French bank would be the likeliest buyer.

On notice

The Treasury Department “plans to use expanded counterterrorism powers to target foreign financial institutions that facilitate terrorist financing.” Under an updated executive order, “the U.S. can now impose secondary sanctions for any person, business or financial institution found to have handled transactions” with those designated as terrorists by the U.S. “Foreign financial institutions at risk of such secondary sanctions include money services businesses, cryptocurrency exchangers and administrators, in addition to banks.”

Financial Times

Headwinds

Morgan Stanley became the latest American bank to warn on the negative effects of low interest rates. CFO Jon Pruzan said the company’s investment bank “continues to suffer from the same headwinds that hit revenues in the first half of the year, while its net interest income will fall thanks to a ‘dramatically different’ interest rate environment.” Pruzan, speaking at Barclays’s financial conference in New York City, “did not give detail on the expected percentage rise or fall across divisions for the third quarter, but the guidance suggests a worse outcome than JPMorgan, where chief executive Jamie Dimon said trading revenues were up 10% year on year while investment banking revenues were flat.”

Leaving Deutsche

Credit Suisse has hired Kinner Lakhani, “Deutsche Bank’s top European company analyst and adviser, in the latest high-profile departure from the German lender as it undergoes a radical retrenchment.” Lakhani will become head of strategy and development at the Swiss bank and report directly to CEO Tidjane Thiam. “Lakhani made his name covering banks in a two-decade career with stints at ABN Amro, Morgan Stanley and Citigroup before joining Deutsche in 2015.”

Quotable

“The USA should always be paying the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads.’” — President Trump’s latest criticism of the Fed

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