U.K. overdraft plans draw scrutiny; Deutsche to delay pay raises

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Fed in focus

The Federal Reserve is likely to “focus on fine-tuning their control of short-term rates” rather than changing the federal funds rate itself at its monetary policy meeting that concludes Wednesday, the Wall Street Journal says. “The Fed successfully flooded markets with cash late last year to avoid a spike in overnight lending rates. Now, officials have to decide when and how to wind down the program. The task could be more complicated if some market commentators are right that the moves have fueled a stock-market rally.”

“Among the questions officials face: When and how fast to curtail the current expansion of the Fed’s asset portfolio, which has swollen to $4.1 trillion from $3.8 trillion in September. And whether to start a new facility to cap money-market rates, and if so, how to design it.”

True to his quiet, behind-the scenes approach, Jerome Powell “is positioning the Fed in a fraught era,” the New York Times says in a profile of the Fed chair.

Here’s what to watch for in the Fed’s policy statement and Powell’s press conference Wednesday afternoon, according to the Journal.

"But a boring week for the Fed masks the many challenges ahead for the central bank," the Washington Post says.

High but fair?

The Financial Conduct Authority is asking banks in the U.K. to explain their new overdraft rules “after every major lender introduced near-identical interest charges of around 40%,” the Financial Times reports. The regulator also wants to know “how they plan to protect customers who will be left worse off as a result.”

The FCA “asked banks for a detailed timeline of how they came to their decisions.” Christopher Woolard, the regulator’s interim CEO, said the pricing was “not necessarily evidence of anything going wrong in terms of competition law” but that it plans to look “very closely” at the matter.

“To conspiracy theorists it may smack of collusion. Outright collusion is unlikely, though,” the paper says in an adjoining commentary. “The rates are whopping, but transparently so. Unsecured consumer credit is a risky business. Banks charge accordingly. Not all customers are equally risky. As the FCA has noted, customers with better credit have other cheaper options — such as credit cards at 0%.”

The FCA said “70% of lenders’ clients will be better off as a result of its proposed measures, meaning 30% will be worse off,” according to the Journal.

“We expect banks to take steps to support [customers], for example firms could reduce or waive interest, offer a continuation of overdraft borrowing at the current rate of interest, or agree to a repayment program — including a personal loan,” the FCA said. “We will be keeping a close eye on the market and we will act should we see continued harm.”

Financial Times

Social agenda

State Street Global Advisors, the bank’s $3.1 trillion investment unit and “one of the biggest shareholders in many blue-chip companies thanks to its position as one of the world’s largest index fund providers, is planning to start voting against the boards of big companies that lag behind on environmental, social and governance standards, a threat that is likely to reverberate in many corporate boardrooms.”

“Ultimately, we have a fiduciary responsibility to our clients to maximize the probability of attractive long-term returns — and will never hesitate to use our voice and vote to deliver better performance for them,” said Cyrus Taraporevala, the unit’s CEO. “This is why we are so focused on financially material ESG issues.”

New York Times

Brave new world

Goldman Sachs is holding its first investor day in its 151-year history on Wednesday, “a bid to overcome [its] secretive mantle and convince the outside world that it is ready for a new era of accountability. The chief executive, David M. Solomon, is hoping that the event will be an opportunity to show that this isn’t the Goldman Sachs of yore — attempting a makeover of an institution that became known as an adrenaline-fueled sales-and-trading juggernaut but little more than that. Attendees are likely to encounter a bit of chest-thumping about Goldman’s historic strengths, namely investment banking and trading, but also a lot of talk about making the firm less opaque. And expect Mr. Solomon try to humanize the aloof institution, which he took over in the fall of 2018.”

Bad reputation

The price of bitcoin and digital tokens has steadily dropped in recent months and trading has slowed. “But one corner of the bitcoin economy is still going strong: the sale of illegal drugs and other types of lawbreaking. The amount of cryptocurrency spent on so-called dark net markets, where stolen credit card information and a wide array of illegal drugs can be purchased with bitcoin, rose 60% to reach a new high of $601 million in the last three months of 2019,” the paper says.

“The continuing growth of illegal transactions underscores the difficulties that bitcoin has had in moving past its reputation as a refuge for scoundrels, even as Wall Street institutions have begun buying and selling the digital tokens.”

Elsewhere

No fooling

Deutsche Bank employees on a fixed-pay schedule will get their raises on April 1, but for the first time, they won't be retroactive, Reuters reports. The bank cited "the need to further improve cost management” for the push back, Reuters reports. Normally, the bank announces pay increases on April 1 following annual reviews or promotions, but the raises are retroactive to the beginning of the year. The bank “implied” the new policy will be permanent starting this year.

“The bank has been reeling from a series of scandals and years of losses more than a decade after the onset of the global financial crisis. It is also in the midst of a major overhaul” that has resulted in the loss of 18,000 jobs.

Quotable

“Millions of people in arranged overdrafts are now worried about their borrowing costs doubling overnight, potentially pushing many into a difficult financial position.” — Tom Selby, senior banking analyst at AJ Bell, about U.K. banks’ plan to uniformly raise interest rates on overdrafts to 40%

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Monetary policy Overdrafts ESG Bitcoin Compensation Federal Reserve Deutsche Bank Goldman Sachs
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