Why bank stocks are floundering; blockchain firms retrench
Wall Street Journal
President Trump’s expected nomination of Mark Calabria as director of the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, "would be a loss for the housing industry,” the Wall Street Journal says. Calabria, currently Vice President Mike Pence’s chief economist, “might advocate for more incremental steps to reduce the companies’ footprints in housing. Mr. Calabria holds iconoclastic views of mortgage-finance matters and has been critical of some of the basic foundations of the U.S. mortgage market, advocating for the elimination of government support for the 30-year fixed-rate mortgage and for banks to hold more of the loans they originate. He would play a pivotal role over the biggest unresolved legacy from the financial crisis: what to do with the failed mortgage-finance companies a decade after their government takeover at the height of the financial crisis.”
American Banker's Hannah Lang reports on how the appointment would impact GSE reform.
The president is also expected to nominate Heath Tarbert, assistant secretary of the Treasury for international markets, to serve as chairman of the Commodity Futures Trading Commission when the term of the current head, J. Christopher Giancarlo, ends next April. “If confirmed, Mr. Tarbert’s portfolio would include many of the issues currently on his plate at Treasury, including market fallout from Brexit and aligning international regulatory frameworks with U.S. rules.”
In the wake of the 80% drop in bitcoin and other digital currencies this year, companies relying on cryptocurrency strength are “laying off employees in an effort to survive the nascent market’s biggest selloff to date. Last year’s market boom fueled a hiring spree at hundreds of startups developing new uses for blockchain. The young industry funded the expansion with billions of dollars raised through initial coin offerings.” Now many smaller firms “have retrenched sharply or quietly closed.”
Can Powell be fired?
Peter Conti-Brown, an assistant professor at the University of Pennsylvania’s Wharton School of Business, looks into the question: Can the president fire the Federal Reserve chair? The issue is a political one, he says. "Waiting on the Supreme Court to resolve uncertainty about the control of the Federal Reserve would be devastating for the Fed’s credibility and inject substantial uncertainty into the global economy. In the face of such turmoil, either Mr. Trump or the Fed would blink." So, he concludes: “If Americans and their representatives embrace Mr. Trump’s campaign against the Federal Reserve’s independence, no law will protect it.”
Deutsche Bank needs “a bold, and urgent, rethink," the paper says. "[CEO Christian] Sewing has pleaded for patience to fix the bank’s problems. But if he fails to come up with a convincing plan in short order, fears will mount that Deutsche and its €1.4 trillion balance sheet could spiral out of control. The bank that was once a German national champion has already become more of a national embarrassment. It must not be allowed to sleepwalk into a systemic collapse.”
Despite its problems, the bank is reportedly looking to add people to its American equities and private equity advisory businesses, “signaling expansion in parts of the troubled lender even as head office demands cost cuts. Deutsche’s New York business is central to the fortunes of its investment bank,” although it’s currently on the Federal Reserve’s list of troubled institutions.
More to do
Danièle Nouy “is rightly credited with having established the Single Supervisory Mechanism as a credible regulator that has helped the European banking system to get on top of some of its most urgent challenges,” says Patrick Jenkins, the paper’s financial editor. “Over her five years in charge, capital and liquidity buffers have been bolstered significantly. But even she admits the sector looks far from healthy.” The paper looks at six of the biggest problems facing her successor, Andrea Enria, as the European Central Bank’s chief bank regulator.
There are two reasons why banks stocks are doing so poorly, Richard X. Bove, chief strategist at Rafferty Holdings, writes in a CNBC commentary. “First, if one uses traditional stock analysis one can argue that the stocks are reflecting expected weaker fundamentals. However, the second set of reasons is perhaps more compelling. Bank capital is under severe pressure because managements are giving away literally hundreds of billions of dollars in stock buybacks and what remains is being eroded by higher interest rates. Deposits are under pressure because they cost more and the lowest cost deposits are leaving the banks.”
“We live in a world where consumers pay hundreds of dollars each year to banks for low-quality banking services, where banks return practically zero on deposits but leverage those deposits on a 10x ratio to finance projects that make the world a dirtier, less equitable place while creating no economic benefit for consumers.” — Gunnar Lovelace, founder and CEO of Good Money, a Los Angeles-based startup that calls itself “a digital banking platform with a conscience,” which has received $30 million in funding.