Mnuchin open to easing liquidity rules; BofA employees rewarded

Receiving Wide Coverage ...

Mastering the quarter

Mastercard said its third quarter profit rose 11% over last year’s comparable quarter to $2.11 billion as net revenue increased 15% to $4.47 billion. Gross card dollar volume climbed 12% to $1.65 trillion. The company beat analysts’ expectations on both earnings and revenue. Wall Street Journal, Financial Times, American Banker

Shifting gears

“Payday lenders staring at encroaching regulatory restrictions and accusations of predatory lending” have found “an opportunity to reinvent themselves” as online installment lenders “promoting an almost equally onerous type of credit,” Bloomberg News says. These loans carry “much longer maturities but often the same sort of crippling, triple-digit interest rates” as payday loans.

“In just a span of five years, online installment loans have gone from being a relatively niche offering to a red-hot industry. Subprime borrowers now collectively owe about $50 billion on installment product. In the process, they’re helping transform the way that a large swathe of the country accesses debt. And they have done so without attracting the kind of public and regulatory backlash that hounded the payday loan.”

Meanwhile, payday lenders are being told to curry favor with the Trump administration by donating to the president’s reelection campaign. A “September 24 webinar sponsored by Borrow Smart Compliance, an industry consultant, gives surprisingly frank insight into the payday lending industry’s strategy to push for weaker government regulations by forging a tight relationship with the Trump administration and the president’s campaign," the Washington Post reports. "Billing himself as one of President Trump’s top fundraisers,” Michael Hodges, the founder of Advance Financial, one of the country’s largest payday lenders, “told fellow payday lenders that industry contributions to the president’s reelection campaign could be leveraged to gain access to the Trump administration.”

Separately, a legal challenge by Advance Financial to exclude debit cards from the Consumer Financial Protection Bureau’s proposed payday lending rule could hold up the agency from moving forward with the rule, American Banker reports.

Bad news continues

Deutsche Bank reported a €832 million ($924 million) loss for the third quarter, including a €1 billion pretax loss in its new “bad bank” division, as net revenue dropped 15%. The bank’s stock price was down sharply in Europe. “The results reflect the first quarter of post-overhaul reality,” the Wall Street Journal says. “Germany’s biggest lender faces years of challenges cutting costs while maintaining enough profit to pay for its restructuring, without depleting too much of the capital buffer it needs to absorb potential losses and satisfy regulators.”

“Revenue in fixed income trading — by far the biggest remaining unit of Deutsche’s downsized investment bank — fell 13%,” the Financial Times reports. “The decline is further evidence that Deutsche is falling behind its large U.S. rivals which on average reported an 11% increase in the metric.”

Sanctions coming

Banking regulators in Sweden and Estonia “have taken their investigations into Swedbank over anti-money laundering controls at its Baltic operations to the next level, marking a formal step in the process that could lead to a financial penalty,” Reuters reports.

“That the Swedish and Estonian authorities now have decided upon initiating sanction processes, is a logical consequence of the ongoing investigations,” a Swedbank spokesman told the news service.

In response, the bank “said its own newly established anti-financial crime unit is coordinating 132 initiatives to improve routines, system support and processes," the Journal says. "About 71 of these are expected to be completed in the fourth quarter of 2019.”

Wall Street Journal

Driving business

Uber “is getting deeper into the banking business, offering digital wallets and debit accounts designed for drivers” and Uber Money for customers. It’s also expanding the rewards on its existing credit card issued by Barclays, which will now give 5% back on car rides, scooters, food delivery, and helicopter trips on Uber Copter.

Financial Times

Cost conscious

Citigroup, “the third biggest dealer in the $6.6 trillion-a-day foreign-exchange market, plans to reduce the number of systems it uses to connect with customers by two-thirds by the first quarter of next year,” a move that “could save the bank millions of dollars a year in costs. The move also suggests that after two decades during which competing banks have leapt at almost any chance to join third-party systems in response to customer behavior, they now want to wrest back more control.”

Help from abroad

A 27% jump in earnings at its U.S. unit helped “mitigate the impact of a difficult European banking market on Banco Santander in the third quarter, as the eurozone’s largest retail lender reported higher than forecast revenues and profits.” Profits from Brazil were up 19% and 14% in Mexico.

Elsewhere

Easier liquidity rules

Treasury Secretary Steven Mnuchin “is open to loosening financial crisis-era regulations that have stiffened liquidity rules for big banks to relieve possible cash crunches in short-term funding markets.” In an interview with Bloomberg, Mnuchin said “he had spoken to Jamie Dimon, chief executive of JPMorgan Chase, and other banks about how to avoid liquidity problems.”

Luke MacGregor/Bloomberg

“The banks have raised an issue around intra-day liquidity, and that is something that makes sense for regulators to look at,” Mnuchin said. “There may be a way around current regulations that creates more intra-day liquidity without raising risks,” he said.

Feeling special

Bank of America is providing special bonuses to employees for the third straight year to reward them for the bank’s strong performance, Reuters reports. “Roughly 95% of the bank’s employees will receive the special bonus this year. Those making less than $100,000 a year will get $1,000 in December, and those making between $100,000 and $350,000 a year will receive stock awards in first quarter of next year.”

“The bank has paid out about $1.6 billion in special bonuses since 2017 and has set a goal of raising its minimum wage to $20 over the next two years from $13.50 in 2017.

Quotable

“When Trump was elected, the needle moved in our favor — finally.” — Max Wood of consultants Borrow Smart Compliance, at a September 24 webinar for the payday lending industry