Banco Popular de Puerto Rico

Receiving Wide Coverage ...The (Slow) Death of Cash: Canada is getting rid of its penny, which now costs 1.6 times more to produce than it’s worth. Here in the U.S., meanwhile, Christian Science Monitor guest blogger Joseph Salerno declares that Washington has been waging a “war on cash” by refusing to print bills in denominations larger than $100 since 1945. And a Benjamin today sure doesn’t buy as much as it did back then. “This has made large cash transactions extremely inconvenient and has forced the American public to make much greater use than is optimal of electronic-payment methods,” Salerno writes, bemoaning the loss of privacy that comes with transacting on the grid. Even if you find Salerno’s interpretation of events a touch conspiratorial, keep reading. In the second half of his post he reports a truly amazing phenomenon: the emergence of Tide detergent as a black-market currency for the drug trade. Not any laundry detergent, mind you, just Tide. It fits the bill, as it were, for a currency, Salerno writes. “Tide is the most popular brand of laundry detergent and is widely used by all socioeconomic groups. Tide also is easily recognized because of its Day-Glo orange logo. Laundry detergent can also be stored for long periods without loss of potency or quality. … Enough can be carried by hand or shopping cart for smaller transactions while large quantities can easily be transported and transferred using automobiles.” We hesitate to call Procter & Gamble for comment. For a more optimistic perspective on the digitization of money, MIT’s Technology Review interviews former Treasury Secretary and White House economic advisor Larry Summers about his work with Square (he’s on the board of Jack Dorsey’s disruptive payments company) and the tech VC firm Andreesen Horowitz (where he’s a “special advisor,” which means contributing as “a thinker, not just as a door opener”). “Today, money can get transferred from any part of the planet to any other part of the planet, essentially instantaneously,” says Summers, who also teaches at that other university in Cambridge, we forget what it’s called. “I think for the most part that's a positive thing. People can see prices more easily, they can act on their desires more efficiently; friction is rarely a good thing.” And if you haven’t already, check out American Banker’s video interview with David Wolman, author of the book “The End of Money,” in which he talks about the moral and public-health arguments for doing away with cash, the adoption hurdles for mobile payments, and the privacy issues that quite understandably bother people like Salerno (and us as well, we should emphasize). (While we’re shamelessly self-promoting, watch the clips from our recent analyst roundtable on a meat-and-potatoes banking topic: the future of superregional banks. The latest video focuses on the risks facing this category of institutions; another video has our panel of experts explaining why they nevertheless consider the mid-tier banks the best-positioned group in the new environment.)

Receiving Wide Coverage ...Breach Bigger Than Reported: The Global Payments security breach was bigger than initially reported, the processing company announced Sunday night. Hackers gained access to certain account details of up to 1.5 million credit cards, and managed to export account information from the company’s systems.

Receiving Wide Coverage ...Blame Canada: Royal Bank of Canada is accused of a "wash trading scheme" that eliminated its risk of losses on certain investments and guaranteed it certain tax perks. It is being sued in New York by the Commodity Futures Trading Commission, which says RBC coordinated "fictitious" trades with its subsidiaries. RBC denies the allegations. It could face tens of millions of dollars in fines if it loses in court. Wall Street Journal, New York Times, Financial Times

Receiving Wide Coverage ...Dream State: Just stop for a second. Put down your coffee and consider this: the head of the government said the nation’s biggest banks are too strong, make too much money and need to be broken up.

Editor's note: Morning Scan will not publish on Friday, April 6 in observance of the Good Friday holiday. We'll be back on Monday, April 9.

Receiving Wide Coverage ...Thar She Blows! JPMorgan Chase's chief investment office has taken a large bullish position in credit default swaps — large enough to move the market and thus earning the trader who placed most of the trades the nickname "the London Whale." There's a good chance these trades will be exempt from the pending Volcker rule's ban on proprietary trading by banks, the papers report. The CIO's mission is to hedge companywide risk, not to generate short-term profits, JPMorgan says. But critics of the Volcker rule have said the line between prop trading and permitted activities like hedging can be blurry. Meanwhile, hedge funds that have made bearish bets on the same corporate credits are fuming, since a rally (which they say the Whale's bullish position sparked) has forced them to meet margin calls. Wall Street Journal, Financial Times, New York Times, Bloomberg.

Receiving Wide Coverage ...Who Knows What Dangers Lurk in the Heart of the Financial System? The FT knows. The paper has a package of stories today on the global shadow banking system, which it says "has recovered more rapidly" than the regulated banks "and is poised to usurp banks in a variety of ways." (If you don't have time to read all the stories, there's also a handy cheat sheet.) Banks have been selling assets to shadow institutions to meet new heightened regulatory capital requirements, for example. In Europe nonfinancial companies, including manufacturers like Siemens and retailers, have begun funding their suppliers and other smaller firms. A poster child for the resurgence in shadow banking is GSO, a unit of the private equity firm Blackstone, which "has emerged as one of the biggest providers of capital to companies with sub-investment grade ratings in Europe and the US as well as a significant financier of high-profile acquisitions." However, the FT says old-school broker-dealers are unlikely to stage a comeback and that hedge funds, while recruiting star proprietary traders from banks soon to be subject to the Volcker rule, are keeping a lid on leverage. Yet another story recaps the SEC's proposed new regulations of money market funds, though we ought to duly note that former bank regulator and current money fund advocate Jerry Hawke disputes any characterization of his client's industry as "shadow banks." Most interesting to us is a very brief story in the FT package about how financial institutions like Goldman Sachs and Deutsche Bank are acquiring insurance businesses in Europe for a stable source of funding — even more reliable, perhaps, than deposits. "Life insurers and pension schemes make very long-term promises to pay out money to people, but only when certain things happen — for example, retirement or death. So they are extremely unlikely to suffer a run." And to think that a few years ago insurance companies here were applying for banking charters. The grass is always greener … Finally, the FT’s banking editor, Patrick Jenkins, cautions in an op-ed that bankers who complain about the growth of shadow banking ought to keep an eye on their own houses. He warns that the seemingly low-risk business of M&A advisory, where banks like UBS have been placing more of their chips, has its share of hazards, not least of which is that the more firms are trying to win business, the less profitable it will be.

Receiving Wide Coverage ...DeMarco Blinks. No, He Doesn’t: Just reading some of the headlines about Ed DeMarco’s speech yesterday, you’d think the Federal Housing Finance Agency’s indefinitely acting director had flip-flopped and endorsed principal reductions by the GSEs. “Analysis: Write-Downs Would Benefit Fannie, Freddie.” “Housing regulator argues for debt forgiveness.” “New Stance on Forgiving Mortgages.” Well … not quite. The stories make clear that DeMarco remains unconvinced the benefits of having Fannie Mae and Freddie Mac reduce mortgage principal (e.g. the borrowers would be more likely to make payments) would outweigh the costs (e.g. other borrowers might be more likely to miss payments if they see they can get a break). His “new stance” seems to be “meh.” “This is not about some huge difference-making program that will rescue the housing market,” he said. “It is a debate about which tools, at the margin, better balance two goals: maximizing assistance to several hundred thousand homeowners while minimizing further cost to all other homeowners and taxpayers.” DeMarco, who’s been under pressure from the administration to allow the GSEs to write down mortgages, said he’ll make a final decision on the matter this month. Wall Street Journal, Financial Times, New York Times, Washington Post.

Receiving Wide Coverage ...Two More Years of This? Try Three: Janet Yellen, the Fed’s vice chairwoman, emphatically supported the central bank’s plan to keep rates super-low through late 2014 and suggested easy money may need to continue “until late 2015.” Wall Street Journal, Financial Times, New York Times, Calculated Risk.

Receiving Wide Coverage ...Earnings: JPMorgan Chase and Wells Fargo reported first-quarter results this morning. JPM handily beat analyst estimates, according to the early takes. Previewing JPMorgan's conference call, the Journal's "Ahead of the Tape" said the tone taken by CEO Jamie Dimon "will influence how investors view banks generally." Doesn't it always? The column also notes that "Dimon may have to explain how headline-grabbing trades like those by a unit in London will be affected by a ban on proprietary trading," and we suspect the impetus for him to address the matter will be especially strong now, after this Bloomberg headline: "JPMorgan Said to Transform Treasury to Prop Trading." Another earnings curtain-raiser story in the Journal takes a broad look at how expenses — for things like litigation, compliance and foreclosures — are burdening banks. The FT says the administration's revamped Home Affordable Refinancing Program should aid bank profits in the upcoming reports, though. Wells Fargo, for example, could generate an extra $2 billion to $4 billion of revenue this year from refinancing underwater borrowers through the government's "scheme," as the Brits at the FT call it. (The word's not pejorative on their side of the pond.)