Walmart's banking ambitions; Klarna arms up

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Be very careful

New York Attorney General Letitia James says investors should use “extreme caution” when buying cryptocurrencies “and to watch out for scams following a recent run-up in bitcoin’s price” past the $50,000 mark, the Wall Street Journal reported. “The increased interest in cryptocurrencies and bitcoin’s recent rally has increased the number of bad actors—those who might use cryptocurrencies for fraudulent activities and investment scams,” the AG said. “The office also warned brokers, dealers, salespersons and investment advisers that they must register with the Office of the Attorney General’s Investor Protection Bureau.”

Separately, the Financial Times calls a recent report by Citigroup on bitcoin “embarrassingly bad” and “truly one of the most shocking bits of ‘research’ we have ever seen from an investment bank. Citi should retract this report immediately,” it advises, “not that they will.” The bank didn’t comment.

Wall Street Journal

Feel the heat

“It isn’t yet clear precisely” what Walmart’s new fintech startup will be doing, but its hiring of the head of Goldman Sachs’ Marcus consumer finance division and one of his senior lieutenants is “shaping up to be something well beyond” a mere path to try to cut costs, the Journal says.

“A lot of attention may be on Walmart and whether it pursues a banking charter of some kind, but that may be beside the point. In the fintech world, alliances with banks are common, and Walmart has said fintech partnerships and even acquisitions are possible. Walmart has many bank partnerships today, such as with Capital One for rewards credit cards and with Green Dot for MoneyCard debit cards. In any form, Walmart’s fintech efforts may be felt by stocks across banking.”

Walmart’s hiring of the two Goldman executives gives “the big-box chain the expertise it needs to become more competitive in payments and other financial services,” American Banker says.

Still plenty of fuel?

Rocket Cos. “could be flying into some turbulence” if mortgage rates keep rising and reduce mortgage refinances and purchase loans. “But perhaps not quite as much as feared. So far, though, Rocket isn’t predicting much of a falloff in volume.”

“A lot hinges on factors beyond originators’ control, such as where mortgage rates will go next, as well as the spreads between the primary and secondary mortgage market that affect margins. A modest or temporary spike in rates might shake out some weaker competitors, and Rocket would be well positioned to capitalize if what remains is a merely very good mortgage market, rather than an exceptional one.”

Duped?

Two men went on trial in federal court in Manhattan on Monday “accused of devising a scheme to trick banks into approving around $160 million of marijuana-related transactions in a case that could have profound consequences for the U.S. marijuana industry and shed light on its place on the fringes of the mainstream banking system.”

“In a notable shift from typical drug-related cases, Manhattan federal prosecutors in this case haven’t focused on the drugs themselves, but rather alleged subterfuge in the banking transactions behind them. The men are accused of devising a sophisticated fraud that brought U.S. banks into the marijuana business. The alleged victim banks include Bank of America, Citibank and Wells Fargo. Prosecutors say the banks were unwitting victims. Defense lawyers for the two men say the banks knew their cardholders were buying drugs and tacitly approved it, turning a blind eye to profitable but unsavory transactions.”

Rising tide

The rise in bond yields “has been good for bank stocks, since higher rates typically mean higher profits. The KBW Nasdaq Bank Index is up 20% so far this year. The KBW Nasdaq Regional Banking Index is up 27%. Banks large and small are often viewed as a bellwether for the economy, and right now investors are feeling optimistic. As the vaccine rollout and the possibility of a stimulus package are gaining steam, so are bank stocks.”

Financial Times

Fired up

Klarna, the fast-growing buy now-pay later company, “said it is on the hunt to make acquisitions as it raised a fresh $1 billion of investment, valuing the Swedish fintech at $31 billion, almost six times more than it was worth 18 months ago” and “reconfirming its status as Europe’s most highly valued private fintech. Klarna has enjoyed a dizzying rise in valuation as it plans for a stock market listing following its successful launch in the U.S.”

CEO Sebastian Siemiatkowski told the FT that the “company spied the chance to capitalize on surging demand in the U.S., and that the fundraising would give it ‘additional firepower’ that could be used ‘if we’re looking at some M&A.’ We do believe this is going to be a transformative time for retail banking and payments.”

Stay strong

Democratic senators Elizabeth Warren and Sherrod Brown are warning that it would be a “grave error” for the Federal Reserve and other U.S. regulators “to extend looser capital requirements that were introduced for U.S. banks at the start of the pandemic. Their intervention has intensified a political battle over the more lenient rules, which are due to expire at the end of the month. In a letter seen by the Financial Times, Warren and Brown said that maintaining capital relief for the financial sector would ‘substantially’ weaken the tougher regulatory framework that was put in place in the decade following the last global financial crisis.”

Eye of the Tiger

A day after it was reported that the head of Goldman Sachs’ Marcus consumer finance division and one of his senior lieutenants were leaving to join Walmart’s fintech startup, the bank lost a co-head of its asset management division. Eric Lane “is leaving to become president and chief operating officer of the investment fund Tiger Global. The move comes just five months after the Wall Street bank reorganized its asset management division, combining it with the former merchant banking unit and placing it under the leadership of Lane and Julian Salisbury. Lane is member of Goldman’s management committee and co-chair of its partnership committee.”