State Street, JPM Charging to Hold Deposits; Diebold in Merger Talks

Wall Street Journal

First it was Swiss banks charging clients to hold their deposits. Now it's U.S. banks' turn. State Street for the first time has begun charging fees to hold some large dollar deposits, unnamed sources said. JPMorgan Chase has also started charging fees, helping it cut unwanted deposits by more than $150 billion this year. Bank of New York Mellon and Northern Trust, the other two large custodial banks haven't yet begun charging to hold deposits.

Bank of America started telling some institutional clients last year they must move their deposits or pay to keep them at the bank. Executives at B of A decided to give this warning to clients that did not do other business with the bank. And the U.S. Treasury Department may be next in line. Some Treasuries have recently sold at a zero-percent interest rate and some have speculated they could be sold at negative rates.

The low-rate environment is the prime culprit, worsened by the new liquidity coverage ratio. Hedge funds are the primary target for banks' fee assessment. The liquidity coverage ratio requires banks to hold high-quality liquid assets like government debt to cover projected deposit losses. Banks must hold reserves up of to 40% against some corporate deposits and 100% against some hedge fund deposits.

“At some point you wonder whether there will be a shortage of financial institutions willing to take on these balances,” said Kelli Moll, an Akin Gump attorney who advises hedge funds. As a result, the nationwide loan-to-deposit ratio at banks has taken a tumble, falling to 71% in the second quarter from 92% in mid-2007.

State Street previously warned customers the fees might be coming, specifically on outsized nonoperational balances. State Street doesn't have a minimum deposit size to trigger the fees. The fees vary case by case and are applied to both new and existing clients, the unnamed sources said.

The Journal has a story on banks' attempts to patent their innovations, following a story American Banker ran in July on banks trying to fight off patent trolls by locking down intellectual-property rights. Equifax, according to the Journal, has patented its system for monitoring the identity theft of children.

Bank of America, which American Banker reported as having received 232 patents last year, the most of any bank, produces a monthly report on the bank's patent activity, said Cathy Bessant, chief operations and technology officer. Some of B of A's patents include a splittable gift card, a system to help consumers make decisions where and when to buy gas and a call center quality management tool to monitor the emotions of a support agent.

Deutsche Bank made a number of changes to the ranks of its upper-management on Sunday, as the German bank looks to shrink and become less complicated. Among the changes, Colin Fan, co-head of investment banking, will quit today. Michele Faissola, head of wealth management, will also resign. DB will also abolish committees. DB also plans to split its investment bank into two divisions, one for mergers and acquisitions and the other for underwriting and transactional services.

ATM maker Diebold is in talks to acquire German ATM maker Wincor Nixdorf for about $1.9 billion. A combination would help the No. 2 and No. 3 ATM makers focus more on digital payments and lessen their reliance on ATMs for revenue. “The market seems to be afraid of structural challenges from cashless payments,” UBS analyst Sven Weier said earlier this month.

Square doesn't need a Trenta-sized triple-shot macchiato to wake up in the morning. Square's IPO filing garnered some bad press, as it shed light on the hard bargain Starbucks drove, but it wasn't all bad for Square, says “Heard on the Street.”

For one, it was a good marketing deal, raising awareness of the Square product. It also showed that Square can handle the load of a large customer. Also, while the Starbucks partnership will end, it turns out Starbucks wasn't such a great partner after all. Square's revenue from Starbucks grew a measly 11% during the six-month period ended June 30. Revenue excluding Starbucks grew 52% in the same period.

Washington Post

Fannie Mae and Freddie Mac are necessary evils, a WaPo op-ed writer says. Fannie and Freddie are both flawed, but they are both needed because they guarantee payments on about 60% of U.S. mortgages, Bethany McLean says. And they're the only source of credit for potential homebuyers who have less-than-pristine credit histories. Fannie and Freddie could be used to fight off the pending crisis of renters who can't afford their monthly rent payments, but also can't afford to stash away enough money for a downpayment to buy a home, she wrote.

Elsewhere ...

The Hill: Sen. Dick Durbin, D-Ill., again appears to be taking the side of retailers in a dispute with banks. Durbin wants to know why the FBI removed a warning about data security from an announcement on EMV credit and debit cards. The FBI on Oct. 8 posted a consumer notice about the EMV cards, saying they were vulnerable to fraud and recommending that cards be authenticated through a PIN number, instead of a signature.

On Oct. 13, the FBI yanked the PIN recommendation and re-released the consumer notice. Durbin demanded the FBI explain itself and asked if it bowed to pressure from the American Bankers Association. The ABA has said PIN won't be adopted in the U.S., while retailers favor PIN adoption.

Barron's: The weekly magazine praised Fifth Third Bancorp's ongoing turnaround plan. Barron's cites several reasons why investors should consider buying Fifth Third stock: its shares have fallen 9% this year and trade at a discount to Huntington Bancshares and SunTrust Banks; it's closing branches to cut costs; and it's offering more digital products, which will also lower expenses in the long run.

“It’s got a combination of improving profitability, better capital management, high-quality management, and earnings potential if interest rates rise, and it is trading at one of the lowest valuations in the group,” said John Toohey, an analyst at USAA Investments, which owns Fifth Third shares.