Trump warns on Libra; Lenders retreat on farm loans

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On the radar
The Bank of England is “scrutinizing” Deutsche Bank’s “radical overhaul” plan that calls for 18,000 job cuts and a sharp rollback in its business footprint. Sam Woods, the head of the BoE’s Prudential Regulation Authority, said the central bank is “in close contact with not just Deutsche, but also Germany’s markets regulator, BaFin, and the European Central Bank.”

“We welcome the fact that they have set out a pretty ambitious plan,” Woods said. “Our focus now is to make sure it is safely executed, including here in London.”

President Trump, a long-time client of Deutsche Bank, Tweeted support on Thursday, calling it a “now badly written about and maligned” bank. He also took the opportunity to “lash out at reports that banks have avoided doing business with him.”

“I didn’t use many banks because I didn’t (don’t) need their money (old fashioned, isn’t it?),” he wrote on Twitter. “They wanted my business, and so did many others!”

Deutsche’s planned exit from the equities business may “not quite be the end of the story,” if it follows the same script as Barclays, the Financial Times says. “Barely 10 years after exiting the market, Barclays [is] back and now remains the only full-service European alternative to the Americans. Will history repeat itself with Deutsche Bank?”

Deutsche’s closure of its equity-trading business “is not just a retreat from its global ambitions to become some kind of Goldman Sachs of Europe. It also represents the biggest casualty to date in an automation revolution that continues to shake financial markets,” the FT says in a separate article. “The German bank’s experience underscores how difficult it is to ride this wave of automation. Other inefficient and subscale investment banks will have to face their own moment of truth.”

Trouble in cyberspace
Bitcoin prices dropped more than 10% on Thursday following Federal Reserve Chair Jerome Powell’s comments to the Senate Banking Committee that Facebook’s planned cryptocurrency, Libra, raises “many serious concerns.”

American Banker reports Powell "expressed skepticism about the Libra venture, raising concerns about whether Facebook could meet its stated timetable to launch the currency, about regulators potentially designating Libra as systemically important, and about anti-money-laundering and data privacy issues."

The ranking Democrat on the panel, Sen. Sherrod Brown of Ohio, “said the prospect of a currency controlled by technology companies could pose as great a risk to the public interest as the most significant Wall Street scandals of the last decade. He urged Powell to vet Libra or any similar cryptocurrency thoroughly.”

President Trump joined the debate on Libra and bitcoin on Thursday, launching a “stinging attack on cryptocurrencies, including Facebook’s proposed Libra coin, and warned that the social media network might be subject to full banking regulation if it is to launch the project.”

“Facebook Libra’s ‘virtual currency’ will have little standing or dependability,” he said on Twitter. “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.”

But some cryptocurrency supporters were happy to at least have come under the president’s radar. “First they ignore you, then they laugh at you, then they fight you, then you win. We just made it to step 3 y’all,” Brian Armstrong, co-founder and CEO at Coinbase, said on Twitter.

Wall Street Journal

To ARMs
A financial industry group that includes Goldman Sachs and Morgan Stanley wants to use an interest rate benchmark designed by the Federal Reserve to replace the scandal-plagued Libor rate for adjustable-rate mortgages. The proposal by the Alternative Reference Rates Committee “marks another step in efforts to replace Libor,” which is expected to be phased out by 2021.

“Finding a replacement for Libor is a key challenge for banks, companies and investors because each wants a reference rate that reflects risks from short-term lending and is supported by a liquid market that behaves in a predictable manner. Properly setting the rates on such loans can determine whether the loans are affordable for borrowers and profitable for lenders.”

The plan would employ compounded 30- or 90-day averages of the secured overnight financing rate.

In a BankThink article, Michael Bright, CEO of the Structured Finance Industry Group, says "losing Libor will be messy."

Different direction
The Consumer Financial Protection Bureau has shifted its focus from financial industry watchdog to raising consumer financial literacy. But “Democrats and consumer advocates say the education push shifts the burden of consumer protection from financial companies to ordinary citizens.”

Financial Times

Bigger problem
HSBC may need to compensate three times as many U.K. customers as it originally thought for the “unreasonable” fees they paid after falling behind on loan repayments. The bank “initially estimated that about 6,700 borrowers could be entitled to redress, but on Thursday said it would write to an additional 18,500 customers who had not previously been contacted.” HSBC said the additional customers were found after a “broader and more complex investigation of third-party records.”

Elsewhere

Hard times
Led by J.P. Morgan Chase, big Wall Street banks “are heading for the exits” in the agricultural lending business “after years of falling farm income and an intensifying U.S.-China trade war.” The farm loan portfolios of the top 30 banks has dropped by $3.9 billion, or 17.5%, since 2015, Reuters reports.

“The retreat from agricultural lending by the nation’s biggest banks, which has not been previously reported, comes as shrinking cash flow is pushing some farmers to retire early and others to declare bankruptcy.”

Quotable

“We are very much aligned with Chairman Powell on the need for governments, regulators, central banks, non-profits and others to be able to ask questions, share concerns and provide feedback on this project. This is why we, along with the 27 other Founding Members of the Libra Association, made this announcement so far in advance, so that we could engage in such constructive conversations.” — Facebook spokesman Andy Stone, responding to Fed Chair Jerome Powell’s criticism of the company’s proposed cryptocurrency

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