Receiving Wide Coverage ...
Bulking up
Fannie Mae and Freddie Mac will start retaining earnings instead of handing them over to the Treasury Department in order to start building capital as they move out of government conservatorship and back into the private sector. Under the agreement between the Treasury and the Federal Housing Finance Agency, which regulates the two companies, Fannie Mae will be allowed to retain $25 billion and Freddie Mac $20 billion.
“At present, the companies hold just $3 billion each in capital, and the agreement would substantially increase that figure,” the Wall Street Journal reported. “The move starts a process of the companies raising a combined $100 billion-plus that they will likely need to hold before they can return to private hands. The precise amount is to be worked out over the coming months by their federal regulator.”
“The allowance is a move toward independence for the mortgage companies more than a decade after taxpayers bailed them out,” the Washington Post noted.
Spygate fallout
Credit Suisse’s COO Pierre-Olivier Bouée “resigned after an internal probe found he ordered the surveillance of the bank’s former wealth-management chief, Iqbal Khan, by private investigators without discussing it with Chief Executive Tidjane Thiam or other senior bank officials. His decision set off a scandal that has enveloped the bank for the past two weeks, triggering an internal investigation at Credit Suisse and dealing Mr. Thiam one of the more unusual challenges he has faced at the bank.”
It also “emerged that a security consultant involved in the surveillance effort had committed suicide. The suicide of the security consultant, who acted as a middle man between Credit Suisse and a private investigation firm, puts further pressure on the Zurich-based lender as it battles its worst reputational scandal in years. The bank’s head of security, Remo Boccali, has also resigned.” Financial Times, Wall Street Journal
Wall Street Journal
Crypto ratings
The biggest cryptocurrency exchanges in the U.S. unveiled a new system Monday that rates “which digital assets are probably securities that can’t be traded on their venues—and which likely can.” The Crypto Ratings Council “will publish online ratings of assets on a scale of 1 to 5. The highest value signifies the token is a security that unregulated crypto firms can’t issue, sell or trade. Bitcoin, the most widely traded cryptocurrency, is scored as a 1.” The Securities and Exchange Commission has said bitcoin isn’t a security.
“The system comes as the industry continues to face skepticism from regulators about how it protects investors and complies with federal laws, including anti-money-laundering provisions.”
Separately, software startup Block.one, which sold 900 million digital tokens in 2017 and 2018, “raking in billions of dollars,” was fined $24 million by the SEC for violating federal investor-protection laws by failing to “register the sale with the SEC and provide U.S. investors with required disclosures. The civil settlement announced Monday represents one of the biggest fines” since the agency began a crackdown on initial coin offerings two years ago.
Financial Times
The battle for Asia
“PayPal has become the first foreign company to acquire a payments license in China” after buying a 70% stake in Guofubao (Gopay), a small Chinese online payments company. “The deal makes PayPal the first foreign company to enter the Chinese payments market after two years of promises from Beijing that its financial services industry would be opened to overseas companies.”
Meanwhile, “India has become a central battleground for foreign [payments] companies who see the country as an important source of long-term growth.” PayPal calls the country “critically important” and WhatsApp “is poised to launch its first payments service imminently.”
Hoarders
The Federal Reserve is examining “whether regulation played a role in the sudden rise in short-term interest rates that rocked markets last month, when the largest U.S. banks, despite being flush with cash reserves, did not lend them out overnight as expected. Fed data show large banks are keeping a disproportionate amount in reserves, relative to their assets. The 25 largest US banks held an average of 8% of their total assets in reserves at the end of the second quarter, versus 6% for all other banks.” The Fed said it will discuss the issue at its next meeting at the end of October.
Washington Post
Learning on the job
Federal Reserve Chair Jerome Powell, “20 months into one of the most powerful jobs in the global economy, [is] aiming to prove that his communication style has evolved and he is a steadier hand at the helm.” But he has a ways to go. “In interviews with 20 market players and Fed watchers, nearly all praise Powell for his stoicism in the face of Trump’s frequent swipes at the Fed. But there’s less satisfaction with Powell’s communication to the markets. Over half say he still has problems, particularly as Powell has led a dramatic shift in strategy at the Fed since December, going from raising interest rates then to cutting them now.”
Elsewhere
Boring is good
Morgan Stanley and Bank of America “are expanding the employee-benefits services they offer, hoping to gain market share in the dull-but-reliable business of managing wealth for companies and employees. Morgan Stanley is building on its $850 million purchase of Solium Capital, [since renamed Shareworks], which manages employee stock plans for some 3,400 companies and 2.7 million employees. Meanwhile, Bank of America has focused on retirement services. The bank now manages plans for about 30,000 companies covering five million people.”
The investments the two banks “are making in workplace benefits services reflect the global banking industry’s shift toward steadier, fee-driven businesses to offset a secular decline in trading revenue since the 2007-2009 financial crisis.”
Quotable
“These modifications are an important step toward implementing Treasury’s recommended reforms that will define a limited role for the federal government in the housing finance system and protect taxpayers against future bailouts.” — Treasury Secretary Steven Mnuchin, announcing that Fannie Mae and Freddie Mac will start retaining their earnings to build capital in preparation for returning to the private sector.
