Wall Street Journal
When fears hit a fevered pitch last month that the Federal Reserve could opt to enact sub-zero interest rates, the big-five banks — Bank of America, J.P. Morgan Chase, Citigroup, Goldman Sachs and Morgan Stanley — traded at a remarkably cheap average valuation of 0.66 times book value. But after the Fed on Wednesday announced that it would not only raise interest rates but do so at a slower pace than was otherwise anticipated — two increases this year instead of an expected four — the central bank effectively suppressed bank interest margins and the big five are now valued at an average of 0.75 times book. In a better economy, that might not be anything to write home about, the Journal suggests, but considering they were nearly at book last November, they haven't fallen off a cliff either. "Meanwhile, the U.S. economy, while hardly speeding ahead, at least hasn't downshifted. Against this backdrop, a gradual upward path for rates will still be a help to the banks, even if it won't be the kind of boon investors had been hoping for."
Despite central banks enacting or flirting with negative interest rates, their efforts to weaken their currencies are falling flat, as global currencies soar. When the European Central Bank first cut interest rates into negative territory in June 2014, the euro initially took a sharp dive, but additional cuts last December have had a negligible effect on the currency. The ECB has continued to struggle to weaken the currency, as evidenced by the central bank cutting interest rates further into negative terrain last week, yet the euro is up 4.25% this year and it gained 0.8% against the dollar on Thursday. After the Bank of Japan's efforts to push down its currency with negative interest rates, the yen is up 8% this year and is at its strongest level against the dollar since October 2014. Norway's central bank cut its main interest rate to a record low of 0.5% on Thursday, and the bank's governor is keeping negative rates on the table, yet the Norwegian krone has gained more than 1% against the dollar and was up against the euro.
Meanwhile, after Federal Reserve Chairwoman Janet Yellen this week left interest rates unchanged and the central bank announced interest rates wouldn't rise as quickly as expected, the dollar fell against major currencies. The Journal notes that some are taking note of soaring currencies in the face of low to negative interest rates and questioning whether policy makers are losing their ability to control the financial markets. Among its evaluations of the trend, WSJ writes: "A number of central bankers are reaching for the lever of lower interest rates to weaken their currency and make their exports more competitive. But because policy makers are all following the same approach, they are in effect canceling each other out."
Financial Times
Banks are skeptical of the European Central Bank's program to effectively pay them to lend money in an effort to bolster credit growth and inflation to benefit companies, individuals and the markets. The ECB plans a series of auctions, to run from June until March 2017, to essentially give subsidies lending to businesses and consumers across the eurozone area that has otherwise relied substantially on the central bank's quantitative easing program. European banks would, at worst, pay nothing for a four-year loan from the central bank, and the ECB could pay the banks as much as 0.4% annually if they expand their loan books. The ECB expects the giveaways will spur banks to revive credit creation. But bankers from Germany to Italy believe the lending will have little to no impact on the economic and financial climate, and some says the plan could "do more harm than good." While it may pump more money into the system, they say, it will fail to address other constraints on banks, such scarce and expensive capital. And while ECB surveys of eurozone banks found that businesses are looking for more loans, bankers say people are so cautious of the economy that they don't want to accept more debt despite that borrowing is cheap.
New York Times
A former senior analyst at the Federal Reserve Bank of Chicago, Jeffrey Cho, pleaded guilty in federal court on Thursday to one count of misdemeanor theft for taking 35 confidential financial documents. The stolen documents included financial data and information about the financial health of various U.S. financial institutions. Prosecutors said that Cho, who worked at the Chicago Fed from March 2011 to May 2015, initially denied taking the documents home with him, but later admitted to the theft and to shredding the documents after the F.B.I. first interviewed him last June. Cho is scheduled to be sentenced this June and will face a maximum sentence of one year in a federal prison. His plea comes after a former employee of the Federal Reserve Bank of New York, Jason Gross, received a sentence of one year of probation on Wednesday for leaking confidential Fed information to his former boss who left the Fed to work at Goldman Sachs.
Elsewhere …
Charlotte Observer: At a time when presidential candidates and activists lead the calls to breakup of large banks, Brian Moynihan is saying big is good. Bank of America's CEO defended the size of the Charlotte-based bank in its latest annual report, saying "the fact remains there are only a handful of banks around the world that can handle the global needs of corporate clients, and [B of A] is one of those."
