Goldman ready to crown Solomon?; Banks report weak lending growth

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BofA earnings: Bank of America easily beat analysts’ earnings forecasts for the second quarter. Revenue was lower than a year earlier but also higher than estimated.

Making it official: Goldman Sachs is expected to formally name President David M. Solomon as its next CEO, succeeding Lloyd C. Blankfein, as early as Monday. An announcement had been expected in the fall, and no reason was offered for the change. Goldman releases its earnings report Tuesday.

David Solomon of Goldman Sachs. Bloomberg News

Receiving Wide Coverage …

Mixed signals: Last Friday’s earnings reports from four big banks, while strong, “showed scant evidence” of increased lending activity, either to businesses or households, according to the New York Times. “Overall, lending at the four banks grew only 2.1% in the second quarter,” down from 3% in the first quarter and “well below” the 4.6% percent increase at the same four banks in all of 2016. Marianne Lake, JPMorgan Chase’s chief financial officer, said the decline was due in part to companies using tax cut money rather than taking out more loans.

But the Financial Times says banks are “putting the brakes” on commercial real estate loans due to concerns about “mounting risks.” Lenders are “refusing to sign off on as many property deals because they were worried about overheating, even as they extend more credit to much of the rest of corporate America.”

The Wall Street Journal has an entirely different — and positive — take. “Banks are making more loans to businesses, a potential bright spot as earnings roll in that could be a boon to sluggish shares of lenders,” it says. “The recent stretch of sluggish lending has baffled investors during an otherwise strong period for the U.S. economy. Now, the pick-up could similarly catch investors off-guard, and in doing so, boost bank shares.”

Wells Fargo’s second quarter earnings included a $481 million tax expense stemming from a recent Supreme Court decision that requires online retailers to collect sales taxes even in states where they don’t have a physical presence. But that decision may affect banks.

“The case, which involved South Dakota and retailer Wayfair, doesn’t seem at first blush as if it would affect a bank like Wells Fargo, or extend beyond sales taxes,” the Journal says. “But some observers have suggested … that businesses might have to reconsider whether they’re now liable for state income taxes in states where they do business but don’t have physical operations.”

Deutsche Bank said Monday that its quarterly earnings and revenue will be “considerably above” analysts’ forecasts when they are announced on July 25, with both figures to come in more than double forecasts. The bank’s stock surged more than 9% in Europe on the announcement, which is “required under German regulations because the figures were so different to forecasts.”

Both sides now: The 12 Russians indicted by the Justice Department last Friday on charges of hacking into Democratic Party computer systems used bitcoin to finance their activities. “The indictment provided one of the clearest illustrations to date of the inner workings of the Russian operation,” the New York Times says. “It also showed how cryptocurrencies — and the anonymity they provide — have become both a tool and a challenge for intelligence agencies in the battles between nation states.”

Cryptocurrencies are also inviting targets for hackers. “Since 2011, there have been 56 cyberattacks directed at cryptocurrency exchanges, initial coin offerings and other digital-currency platforms around the world,” the Journal reports. “The increasing frequency of hacks points to the vulnerabilities of cryptocurrencies and the platforms people use to trade them, adding to broader investor worries about fraud and lax regulation of the industry.”

Yet you have to wonder why the thieves are even interested. “Cryptocurrencies like Bitcoin are on their way to being the next big thing or yesterday’s news. Their novelty makes it hard to tell which,” the Times says.

Still, the cryptocurrency news isn’t all negative. A teacher at a high school in New York City’s South Bronx, one of the poorest neighborhoods in the country, gave graduates “a special graduation gift: Zcash, a cryptocurrency that launched in late 2016.”

“The true value is not the money they are getting,” said the teacher, Carlos Acevedo. “The value is getting them familiar with a new financial infrastructure that will expand over the years.”

The Hong Kong Monetary Authority is scheduled to go live next month with a blockchain-backed trade finance platform that links 21 banks. “The launch of the system, designed by China’s Ping An Group, will be one of the first and largest examples of a government-led project aimed at upgrading the $9 trillion global trade finance industry.”

Wall Street Journal

Joining forces: The Clearing House and Financial Services Roundtable are merging to form the Bank Policy Institute, representing 48 of the largest American banks.

Emotional rescue: Michael Daly, the CEO of Boston-based Berkshire Hills Bancorp, “has adapted an unconventional rulebook meant to energize and empower his 1,900 employees. Suits are not allowed. Rock music must be played at every meeting. And ziplines are an acceptable form of transportation. In an industry built on numbers, Mr. Daly believes in emotions and that employees who feel good will do good work.”

There’s a hitch: Regular people like Mary Ann Liegey, a 75-year-old retired teacher in Manhasset, N.Y., are getting snared by banking rules “designed to make it harder for money launderers, terrorists and other criminals to finance illicit activities, hide funds or move dirty money around the globe.” She had her account with Citigroup frozen when she didn’t respond to a “know your customer” notice from the bank.

“People may be enjoying digitized experiences in other realms without a hitch,” said Chris McDonnell, a bank technology adviser at Greenwich Associates. “But in banking, regulations that are usually invisible to the customer are beginning to reveal themselves.”

Financial Times

No excuses: “The world’s biggest banks are doing an awful job of managing their data on risk,” says Charles Taylor, the former chair of the Basel Committee on Banking Supervision’s supervision and implementation group. “Management often seems not to care. The traders, lawyers, accountants and economists who run big banks aspire to be world class in many ways, but they often still settle for data that is only ‘good enough.’ While the banks generally have good intentions, they keep falling behind schedule. Some of their ‘reasons’ sound like excuses, [but] none of these really hold water.”

Giving it the old college try: Klarna, the Swedish fintech start-up, is preparing to launch a payment card and looking to expand outside its Scandinavian and German footprint. But “in a continent short of serious technology players to challenge the behemoths of the U.S. and China, can Klarna become a contender?”


“As we sit here right now today, I would characterize [construction loan] demand as being solid, as being decent — it’s not what it was two years ago,” — Marianne Lake, JPMorgan Chase’s chief financial officer.

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