Bitcoin soars to new record; Fed extends four backstop lending programs

Receiving Wide Coverage ...

Bitcoin bounces

Three years after it hit its previous all-time high, bitcoin surged to a new record of $19,834.93 Monday, “driven by a wave of new investors lured by the potential for big profits,” the Wall Street Journal reported. The previous record was $19,783.21 set on Dec. 18, 2017, after which it plunged and went into a long bear market.

“Bitcoin has nearly tripled in 2020 and is up more than 90% since early September. The surge comes amid a wider rally across markets. With safe assets like government bonds yielding close to zero, investors have been more willing to place bets on risky assets in hopes of reaping big gains, and bitcoin is among the riskiest assets in the capital markets.”

But “bitcoin’s latest climb is different from its last spike in 2017, which was driven largely by investors in Asia who had just learned about cryptocurrencies,” the New York Times said. “Back then, the digital token soon lost momentum as people questioned what it could do other than allow for easy online speculating and drug and ransom payments.”

“While those questions remain, Bitcoin is now being fueled by a less speculative fever. Buyers — led by American investors, including companies and other traditional investors — are treating bitcoin as an alternative asset, somewhat like gold. Rather than quickly trading in and out of it, more investors are using bitcoin as a place to park part of their investment portfolios outside the influence of governments and the traditional financial system.”

“Bitcoin won’t be viewed as an existential threat to the banking system just because its price is soaring,” a Bloomberg analysis says. “But it won’t be ignored either. Rather it will be seen as a spur toward a more digital, regulator-friendly post-Covid payments future. We’ve seen big banks seek to make money from Bitcoin without handling it directly, reflecting fairly limited client demand and a lack of regulatory clarity. That’s still the preferred option.”

Breathing space

Federal regulators Monday “pressed banks to stop using the London interbank offered rate on new transactions by the end of 2021 while backing a plan to allow many existing transactions to mature before Libor fully winds down in June 2023,” the Journal said. “The moves amount to the strongest and clearest guidance yet from regulators about the risks to banks for writing new contracts based on Libor.”

“Entering into new contracts using Libor after 2021 would ‘create safety and soundness risks,’ U.S. regulators warned in a joint statement, pledging to ‘examine bank practices accordingly.’ At the same time, U.S. officials said they welcomed a plan to offer an additional 18 months for so-called legacy contracts—the roughly $200 trillion of existing interest-rate derivatives and business loans tied to the rate—to mature before Libor fully winds down in June 2023.”

“Today’s plan ensures that the transition away from Libor will be orderly and fair for everyone — market participants, businesses, and consumers,” said Randal Quarles, the Fed’s vice chair for supervision.

CEO moves

Jean Pierre Mustier said he will step down at the end of his term next April as CEO of UniCredit “over a rift with the board over future strategy at Italy’s second largest lender,” the Journal said. “Mr. Mustier, one of the best-known figures in European finance, said it had become clear in recent months that the core pillars of his strategy for the bank ‘no longer correspond to the board’s current thinking.’”

“Over four and half years, Mr. Mustier succeeded in strengthening UniCredit, making it leaner and more profitable.” But he ignored pressure to do deals.

“Mr. Mustier’s unexpected decision not to seek another mandate at the helm of the Italian lender came after a heated board meeting on Monday afternoon,” the Financial Times reported.

“That Mustier’s future at UniCredit is coming to an abrupt end doesn’t say much about his plans for the lender, nor his abilities; it is more about the role an increasingly interventionist Italy would like its banks to play,” a Bloomberg analysis said. “As Mustier tries to revive the bank’s profitability after the shock of the pandemic, he finds that Italy’s Treasury and other parts of the government are the stakeholders he needs to please, not ordinary shareholders. Italy is eager for UniCredit to become a white knight for ailing Banca Monte dei Paschi di Siena SpA, and Mustier — naturally enough — isn’t so keen. That has cost him his job.”

In the U.K., meanwhile, Lloyds Banking Group said it named Charlie Nunn, global head of HSBC’s wealth and personal banking unit, as its next CEO, succeeding António Horta-Osório.

“The 49-year-old British banker will leave a lender with global operations and a focus on Asia to lead a bank dedicated to the U.K. at a time when the country faces significant challenges recovering from the coronavirus pandemic and negotiating the uncertainty of exiting the European Union,” the Journal said.

“Mr. Nunn’s appointment comes at a key time for Lloyds, which is working on a new plan to deal with the combined pressures of low interest rates, Brexit and recovering from the coronavirus pandemic,” the FT said. “The move will also complete a broader changing of the guard at the top of Lloyds, with Robin Budenberg due to take over as chairman on January 1 and William Chalmers having joined as chief financial officer last year.”

Following that move, Horta-Osório was named the next chairman of Credit Suisse, starting next April. “The Portuguese executive is one of Europe’s most highly regarded bankers,” the Journal said, and his move to Credit Suisse makes “a changing of the guard after a decade under current chairman Urs Rohner punctuated by regulatory fines and scandal.” Wall Street Journal, Financial Times

Wall Street Journal

Fed extensions

The Federal Reserve said Monday “it had extended through next March four backstop lending programs that helped to stabilize short-term funding markets when the coronavirus pandemic hit this past spring.” The four programs include the Paycheck Protection Program Liquidity Facility, “which made it more attractive for small banks to fund PPP loans this past spring. The extensions were widely expected and don’t apply to any of the lending programs that Treasury Secretary Steven Mnuchin declined to renew.”

“In testimony prepared for delivery at a congressional hearing Tuesday, Fed chair Jerome Powell said the Fed’s unprecedented steps to stabilize financial markets had largely succeeded in restoring the flow of credit from private lenders. Powell said the central bank’s actions to backstop a range of credit markets after the coronavirus convulsed Wall Street this past spring had unlocked almost $2 trillion to support businesses, cities and states.”

Quotable

“It’s a very different set of people who are buying bitcoin recently. They are doing it in steadier amounts over sustained periods of time, and they are taking it off exchanges and holding it as an investment.” — Philip Gradwell, chief economist at Chainalysis, explaining the recent in jump in digital currency prices and the investors propelling it upward.