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Wells Fargo closing its museums; German Bundestag launches Wirecard probe

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Difference of opinion

“A fissure is forming in the U.S. credit card industry: Are consumers about to go bankrupt or bounce back?” Bloomberg reports. “On one side, risk-management pioneer Capital One is reining in credit lines to reduce its exposure. On the other, the nation’s largest card issuer, JPMorgan Chase, is rolling out a new card designed for travelers and diners — the ultimate countercyclical bet.”

“Those moves are just the tip of a debate unfolding inside the industry. In some corners, worries are mounting that households will struggle to make ends meet, max out their credit and default. But some banks see an opportunity to attract people who are still doing fine.”

Card issuers are also trying to alter their “rewards programs to fit the times,” the Wall Street Journal reports. “Credit card issuers’ revenue has been hit by declining consumer spending during the pandemic and its resulting economic disruption. But the card companies also are grappling with a longer-term issue: keeping customers happy with rewards that suddenly look a lot less enticing, especially in the realm of travel.”

Support needed

The U.S. economy “faces substantial risks, including the premature withdrawal of government spending to support growth, and would require continued stimulus,” Federal Reserve Gov. Lael Brainard said Tuesday. “As was true in the first phase of the crisis, fiscal support will remain essential to sustaining many families and businesses,” she said.

“Ms. Brainard singled out additional government spending and related fiscal policy as a key factor that would influence the pace of any recovery from the economic shock triggered by the pandemic.” Wall Street Journal, New York Times

Echoing those thoughts, “Treasury Secretary Steven Mnuchin urged Congress to appropriate more money, saying at a hearing Tuesday that he was ready to sit down with Democratic leaders to resume negotiations at any time. Mr. Mnuchin suggested the gap between the two sides may be narrowing and mentioned a new, higher number for the administration’s proposed ceiling for a follow-on bill: $1.5 trillion. He added that Democrats and Republicans agree that more money is needed for grants for small businesses, enhanced unemployment insurance and direct payments to households.” Wall Street Journal, New York Times

Getting political

“German lawmakers said they would launch a parliamentary probe into the government’s failure to uncover the Wirecard scandal,” the Wall Street Journal reported. “The probe represents an escalation of the official scrutiny of any role the coalition government played in the scandal. It will allow lawmakers to obtain government documents that were previously inaccessible and question witnesses under oath.”

“More details have emerged in recent weeks showing that government agencies, led by securities regulator BaFin, had ignored red flags about Wirecard for years before the fintech company’s collapse in Europe’s largest accounting fraud in decades.”

The move “will keep the affair at the top of the political agenda well into a critical election year,” the Financial Times said. “MPs decided to push for a full investigation after concluding that a series of special hearings before the Bundestag finance committee had left critical questions about the authorities’ role in Wirecard’s collapse unanswered.”

Swiss spying

Switzerland’s financial regulator said it started enforcement proceedings against Credit Suisse over the bank’s corporate spying scandal. “The Swiss Financial Market Supervisory Authority, known as Finma, said it would pursue potential violations of supervisory law in relation to Credit Suisse’s surveillance and security activities, ‘and in particular the question of how these activities were documented and controlled,’ ” the Wall Street Journal said.

“The move advances a probe that Finma launched at the end of 2019,” the Financial Times said. “Enforcement proceedings will focus on breaches of supervisory laws linked to the bank’s observation and security activities.”

“Finma’s latest announcement is a further setback to Credit Suisse’s new chief executive Thomas Gottstein, who is attempting to draw a line under the series of embarrassing headlines for the bank.”

Wall Street Journal

They’re history

Wells Fargo, “long obsessed with its gold rush-burnished past, will shut down 11 of its 12 museums about its corporate history. It will keep the museum in its headquarters city of San Francisco, but locations in Des Moines, Iowa, and Portland, Ore., and other cities will close. The museums contain some of the stagecoaches that inspired the bank’s logo.”

“Wells Fargo is attempting a rebranding as it moves past a fake-accounts scandal that burst into public view in 2016. A new leadership team was brought in last fall, and CEO Charles Scharf has prioritized cutting costs and improving the bank’s relationship with regulators.”

The bank Tuesday “launched a new checking account that has no minimum balance requirements and charges no overdraft fees, fulfilling a promise by CEO Scharf to establish a consumer-friendly account similar to those offered by rival banks,” American Banker’s Kevin Wack reports.

Square deal

Shares of Square “have rallied 28% in the past month and are up 166% since the start of the year, while bank stocks have fallen sharply. The run-up is mostly due to the popularity of its Cash App offering, which lets consumers send money to one another via smartphone, purchase things with a prepaid debit card and invest in bitcoin and slices of individual stocks. Cash App looks a lot like a bank—digitally storing and transferring money for users.”

“Cash App revenue more than doubled to $325 million, excluding sales of bitcoin, in the second quarter from a year earlier. Thanks in part to Square’s making it easy for individuals to accept their stimulus checks and unemployment benefits in Cash App, the amount of money stored there reached $1.7 billion in the second quarter, 3½ times more than in the same period last year.”

Paying up to save

Jumbo mortgage borrowers “have been paying more in points than they did before the crisis, and more than conforming loan borrowers have paid since the pandemic hit. In normal times, mortgage borrowers have to make a choice: Pay more up front, in the form of a point, and enjoy a roughly a 0.25% interest rate reduction. Or save money up front and accept a slightly higher rate.”

But some lenders say the rate differential now could be more than 112 basis points, or more than “four and a quarter times the traditional rate reduction.”

Financial Times

First in China

Citigroup “has become the first U.S. bank to receive a fund custody license in China, allowing it to act as a custodian bank and hold securities on behalf of mutual and private funds in China.”

Quotable

“Whether it is $1 trillion or $1.5 trillion, again, let’s not get caught on a number. Let’s move forward on a bipartisan basis now. I do not think the right outcome is zero. Nobody does.— Treasury Secretary Steven Mnuchin, telling the House Select Subcommittee on the Coronavirus Crisis about the need for another large government stimulus package.

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