Tesla move unlikely to lift bitcoin payments; Dimon leads White House visit

Receiving Wide Coverage ...

Summit meeting

JPMorgan Chase CEO Jamie Dimon was one of five U.S. business leaders to meet with President Biden Tuesday “as he seeks support from titans of corporate America for his $1.9 trillion stimulus plan,” the Financial Times reported. “The gathering in the Oval Office marked Biden’s first with top business executives since his January 20 inauguration and is likely to set the initial tone for the relationship between the new administration and American companies.”

“Dimon’s presence at the meeting as the only representative of the financial services sector could set him up to be a leading conduit to Wall Street in a similar role to that performed by Stephen Schwarzman, the chief executive of Blackstone, during the Trump administration.”

Dimon “raised the idea of an augmented earned-income tax credit, which could help boost pay for people with lower earnings,” the New York Times reported. “He also talked about how the lack of clear policy plans in Washington in recent years on immigration, infrastructure and education had in his view stymied economic health.”

Wall Street Journal

Invest for the future

“Banks and credit-card lenders need consumers to get spending. But they might need to do some spending of their own, too,” the Journal says. “Certain spending today might be the key to outperformance in the post-pandemic future.”

While many consumers have cut back on credit card usage in the past year due to travel restrictions, restaurant closures and the like, there has been “an increased use of cardholder benefits—a sign that even as many spenders may not be doing the kind of shopping on travel and entertainment they once were, they still get value out of their cards. That is a possible sign of pent-up demand and a longer-term return to normal card behavior.”

“Credit cards are a rare kind of lending in which margins can stay strong even amid low rates, so banks will need to do a lot of [spending on card benefits] as demand returns.”

A rare slip

“Large U.S. lenders saw their loan books shrink in 2020 for the first time in more than a decade,” research from Barclays found. “The 0.5% drop was just the second decline in 28 years.”

“This weighed on profit. Net interest income, the spread between what banks charge borrowers and pay depositors, fell 5% across the industry last year—a consequence of shrinking loan portfolios and near-zero interest rates. It was the biggest drop in more than 80 years of record-keeping, according to research by Mike Mayo, a banking analyst at Wells Fargo.”

Not ready for prime time

Tesla’s announcement Monday that it plans to buy $1.5 billion of bitcoin and allow customers to use the cryptocurrency to pay for its cars “was the latest sign of validation for the burgeoning digital currency.” But that doesn’t mean it’s ready to become mainstream payment vehicle. “The cost of using bitcoin, and its volatility, have made normal, day-to-day transactions impractical. That isn’t likely to change with Tesla’s acceptance of the currency.”

“For users who might want to buy something small, say a $4 cup of coffee at Starbucks, bitcoin is an unattractive payment option because of the associated fees. The median transaction fee is currently around $5.40, but the average is more than $11, and it varies wildly, depending on network traffic. Among the other stumbling blocks bitcoin faces in becoming more ubiquitous is its inherent volatility. Despite its recent surge in value—bitcoin has nearly quadrupled since September—it still swings wildly. It can rise or fall 20% in a single day, sometimes for no apparent reason.”

Financial Times

Hidden gems

“While whizzy assets from Tesla to bitcoin have grabbed investors’ attention, an old-fashioned one has quietly enjoyed a strong run in the Covid-19 era: auto loans. The prices of bonds backed by auto loans have hit multi-year highs.”

“Even as yields in the $220 billion auto-backed bond market have fallen due to the rally in prices, the interest rates lenders charge for loans have barely declined, thanks to strong demand for cars among consumers. The short lifespan of auto loans — three to five years, generally — means borrowers do not tend to refinance. The loans also consume less of a household’s income than other common forms of debt,” meaning they’re unlikely to default. Plus they yield more than twice what mortgages yield.

Biden and Big Tech

“Wall Street executives see the prospect of tougher regulation under the Biden administration as a threat — but also as a chance to neutralize a new generation of high-tech competitors,” the Times reports. “Bank lobbyists and executives say a priority will be persuading the incoming administration that tech giants such as Facebook and Google, as well as upstart fintechs, should not be allowed to provide services that compete with banks without being subject to the same rules.”