Global Networks: Banks

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8:13 pm

Why Greece Should Not Switch To Bitcoin

(GNN) - Editor’s note: Wences Casares is the founder and CEO of Xapo.

In some discussions about Greece exiting the euro, it has been suggested that Greece should swap the euro for bitcoin. At first glance, bitcoin may appear to be the cure. But if the euro is the problem, switching to Bitcoin would be like trying to cure a headache with a bullet to the brain.

The main problem with the euro is that Greece cannot print more of it; only the European Central Bank can. But at least someone can. In theory, Greece could persuade the European Central Bank to print more euros for them. On the other hand, if Greece were to switch to bitcoin, it would have no ability to control how much of their currency they could issue, and no one could be persuaded to issue more bitcoins (not the European Central Bank, not the U.S. Federal Reserve, not the U.S. Marines, no one).

A defining characteristic of bitcoin is that its supply is fixed and capped. There are 13,882,100 bitcoins today, there will be 20,343,750 bitcoins on January 1, 2025, and there will never be more than 21,000,000 bitcoins.

There are about 10 million people who own bitcoins. If bitcoin is successful, we can expect 1 or 2 billion people to own bitcoins sometime in the next 20 years. The only way 1 or 2 billion people can have 21 million coins is by the price of bitcoin increasing (significantly). An economist would call bitcoin a “deflationary currency.”

Yanis Varoufakis, Greece’s new Finance Minister, agrees that because it is deflationary, bitcoin would be bad for Greece. But he goes on to say that bitcoin is a flawed currency because it is deflationary. This misses the point. Bitcoin is not a currency for a government; it is a global currency for the people. People will generally prefer a currency that goes up in value over time (which is called a deflationary currency, like bitcoin) over one that loses value over time (like all country currencies, which are called inflationary).

It is a bad idea for Greece (or any other country) to renounce their currency and adopt bitcoin. It is akin to adopting gold as a national currency and giving up monetary policy. Monetary policy, used responsibly, has been a step forward for public finances and prosperity. Monetary policy, however, has also been abused by governments that choose to print too much currency.

This has created inflation and devastated the finances of the poorest people in these countries. These people have had no choice but to hold on to their national currency as it loses value, in many cases losing everything.

Bitcoin gives people everywhere an alternative. Anyone with a smartphone can hold bitcoins as a refuge from a currency that is losing value. This sends a message to their governments: “Let’s have our own currency, but manage it responsibly, because now we have a choice.”

If bitcoin is successful, it will not replace any country’s local currency, not even Greece. Bitcoin is poised to become not the currency of any particular country but the global, digital currency of the Internet, by the people and for the people.

1:09 am

#Citigroup unit to pay $5 #million to settle #SEC charges

#GNN - A private trading venue owned by Citigroup (C.N) will pay a $5 million penalty to settle charges that it failed to protect customers' data, marking the latest case in a crackdown by U.S. regulators over alleged market rule violations.

The Securities and Exchange Commission said the unit, LavaFlow Inc., is settling the civil case without admitting or denying the charges.

The SEC said LavaFlow failed to put adequate safeguards and procedures in place to protect its subscribers' confidential trading information from March 2008 through March 2011.

As a result, another affiliate was then able to access the data and use it to help determine where to route certain orders, the SEC said.

A Citigroup spokesman said the bank is "pleased to put this matter behind us."

The charges against LavaFlow, which were filed on Friday, mark the fourth case since 2011 that the SEC has filed against an "alternative trading system" (ATS), a type of trading platform that competes with traditional exchanges.

Most recently, the SEC in June levied charges against another ATS operator called Liquidnet, also in connection with a breach of confidential subscriber data.

In that case, the SEC said Liquidnet used the private trading data of customers to market its services. Liquidnet settled the case and paid a $2 million penalty.

The SEC said on Friday that LavaFlow's $5 million penalty is the largest ever imposed on an ATS operator.

The SEC's prior three cases against ATS venues were targeting a type of platform known as a "dark pool," which lets investors trade anonymously and does not publicly display quotes.

LavaFlow is distinct in that it is not a dark pool. Rather, it operates as an "electronic communications network," or ECN, a trading venue that displays some information about pending orders in the system.

The SEC's enforcement crackdown on ATS operators comes as the agency drafts new rules to make private trading venues more transparent.

SEC Chair Mary Jo White announced earlier this year she plans to eventually propose new rules that would require ATS operators to disclose more details to the public about the way they operate.

Dark pool venues in particular have come under scrutiny in recent years, amid concerns that their unlit markets may be driving too much volume away from traditional exchanges and harming price quality.

Other regulators besides the SEC also have been turning their attention to dark pools.

On July 1, Goldman Sachs (GS.N) agreed to pay an $800,000 fine to the Financial Industry Regulatory Authority (FINRA) to settle a case over pricing rule violations in its ATS.

In addition, New York Attorney General Eric Schneiderman is pursuing fraud charges against a dark pool run by Barclays (BARC.L), saying the bank lied to clients about how it policed the pool for high-speed traders.

Barclays on Thursday filed court documents seeking to dismiss the case, which it said had "fatal flaws."

(Reporting by Sarah N. Lynch in Washington and John McCrank in New York; Editing by Paul Simao)

1:04 am

#RBS privatization prospects brighten after surprise profit

#GNN - Part-#nationalized #Royal #Bank of Scotland boosted its chances of an earlier than expected return to private ownership, posting a surprise 1 billion pound ($1.7 billion) second-quarter profit as its painful restructuring begins to bear fruit.

The government has already started selling off shares in its state-backed rival Lloyds Banking Group, but RBS's privatization was considered by banking and political sources to be three to five years away despite drastic cost-cuts, asset sales and the shrinking of its investment bank.

Britain pumped 45.5 billion pounds into the bank during the 2008/09 financial crisis, leaving the government with an 81 percent stake and taxpayers are still sitting on a paper loss of 11.7 billion pounds.

RBS's second-quarter numbers far exceeded analysts' expectations, prompting the bank to report a

week early, and sent its shares soaring 13.5 percent to 373 pence at 1030GMT - on course for their biggest one-day gain since April 2009. Yet the price is still 25 percent below that paid by the state.

However, investors in RBS will now be looking for the same upward momentum achieved by Lloyds, the share price of which nearly doubled in the nine months to January, enabling the government to begin selling its stake.

Before Friday's results, 25 analysts had a "hold", "sell" or "strong sell" rating on the stock, with three rating it a "strong buy", according to Thomson Reuters data.

Though some of those analysts may now alter their view on the bank, new Chief Executive Ross McEwan, who took over from Stephen Hester in October 2013, sounded a note of caution, pointing out that RBS is still dealing with significant problems from its past.

'BUMPS IN THE ROAD'
"This includes significant conduct and litigation issues that will hit our profits in the months and years to come," McEwan warned. "I’m pleased we’ve had two good quarters, but no one should get ahead of themselves here – there are bumps in the road ahead of us."

RBS, which was last year fined 390 million pounds for its part in manipulation of the Libor benchmark interest rate, is one of several banks being investigated over alleged manipulation of foreign-exchange markets. It also faces claims relating to the sale of mortgage-backed securities.

These clouds still hang heavy over RBS, but its prospects have been boosted by Britain's economic upturn, mirroring the a trend in Spain, where Caixabank reported that its bad debts had shrunk as the economy has improved.

Official data on Friday showed that Britain's economy is finally bigger than it was before the financial crisis struck six years ago.

CEO McEwan said the economic revival had helped the bank to recover debts it had previously written off, giving it a net release of 93 million pounds. That compared with 1.1 billion pounds of impairments in the second quarter of last year and analyst expectations of a 500 million hit this time around.

RBS opted to create an internal bad bank in November after Britain's finance ministry had examined and rejected the option of a formal break-up of the bank. The unit was set up to fence off its riskiest assets and leave the remainder of RBS in a better position to lend and support the economy.

'ENCOURAGING SIGN'
A 5.1 billion pound impairment charge on loans in the bad bank contributed to a larger than expected 2013 loss of 8.2 billion pounds, but RBS said on Friday that it has now written back some of the loan losses, selling the assets at better prices than it had expected.

"This is an encouraging sign that the 5.1 billion pound charge taken in the fourth quarter of 2013 was very prudent and will allow RBS to post low impairment charges in the coming years," said Morgan Stanley analyst Chris Manners.

The stronger results - despite RBS setting aside an additional 250 million pounds to compensate customers for mis-selling payment protection insurance and interest rate swaps - lifted the bank's core capital ratio to 10.1 percent at the end of June, up from 9.4 percent three months earlier.

RBS is targeting a Tier 1 capital ratio of 11 percent by the end of 2015 and at least 12 percent by the end of 2016.

A proposed sale of its U.S. business Citizens will boost capital further, but RBS said that the ongoing regulatory investigations and litigation are expected to drag on capital generation over the coming quarters.

For all the concerns, however, McEwan said the results showed the steady progress being made to make RBS "a much simpler, smaller and fairer bank".

"RBS is a fundamentally stronger bank that can deliver good results for customers and shareholders," he said.

($1 = 0.5884 British Pounds)

(Additional reporting by Simon Jessop; Editing by David Goodman)

8:55 am

JPMorgan profit declines 8 percent as fixed-income trading slides

(GNN) - JPMorgan Chase & Co JPM.N, the biggest U.S. bank by assets, said on Tuesday that second-quarter profit fell 8 percent after customer stock and bond trading volume dropped and mortgage lending fees plunged.

The results were not as bad as investors had feared, and the bank's shares rose 4.2 percent to $58.67 in early trading.

Chief Executive Jamie Dimon said the bank had seen "encouraging signs" across its businesses toward the end of the quarter, including businesses drawing more from credit lines. But the bank's executives also sounded notes of caution, noting that it was "too early to assume that this momentum will continue."

Speaking on a conference call with analysts, Dimon said that companies are still not stepping up capital spending. On a conference call with reporters, Chief Financial Officer Marianne Lake said the pickup in bond trading revenue that the bank saw in June has not continued through July.

The report is the bank's first since Dimon disclosed that he had throat cancer.

Dimon told reporters on Tuesday, "I feel great," and added that he would stay engaged with the business as he underwent treatment. He said for the first time that he was advised to take a few weeks of rest after his eight weeks of treatment.

The bank's net income fell to $5.99 billion, or $1.46 per share, from $6.5 billion, or $1.60 per share, in the same quarter of 2013. Revenue fell 3 percent to $24.45 billion.

Analysts on average had expected earnings of $1.29 per share, according to Thomson Reuters I/B/E/S.

Revenue from fixed-income and equity markets fell 15 percent to $3.5 billion in the quarter ended June 30 compared with the same quarter last year, but the drop was less than the 20 percent decline that JPMorgan had forecast in May.

Investors had broadly expected trading revenue drops in the 20-percent range for the big banks, but stronger activity in June helped dampen the declines that banks posted. Goldman Sachs Group Inc GS.N posted a 10 percent decline in stock and bond trading revenue for customers, excluding a business it sold last year.

Citigroup Inc C.N, which reported on Monday, said income from stock and bond trading fell 15 percent, excluding an accounting adjustment - well below the 20-25 percent fall it had braced the market for in May.

JPMorgan executives have said that institutional investors seem to be shying away from bonds because of a lack of strong opinions about future moves in interest rates and currencies.

MORTGAGE LENDING DROPS

JPMorgan, the second largest U.S. mortgage lender after Wells Fargo & Co WFC.N, said its profit from mortgage lending fell 38 percent to $709 million, while mortgage application volumes dropped 54 percent to $30.1 billion.

Overall U.S. mortgage demand has fallen for more than a year as mortgage rates have risen. Demand for loans was also hit by a weaker spring selling season compared with last year.

JPMorgan said total assets at end-June stood at $2.52 trillion, up from $2.48 trillion at the end of March.

(GNN)(Reuters)(AIP)(Reporting by David Henry and Tanya Agrawal; Editing by Ted Kerr and Phil Berlowitz)

8:52 am

Higher stock underwriting revenue boosts Goldman profit

(GNN) - Goldman Sachs Group Inc GS.N posted a 5 percent rise in quarterly profit, spurred by higher revenue from stock underwriting and a smaller decline in fixed-income trading than many on Wall Street had predicted.

The bank's stock was up 0.7 percent at $168.17 on Tuesday morning on the New York Stock Exchange.

Goldman posted net income for shareholders of $1.95 billion, or $4.10 per share, in the three months ended June 30, up from $1.86 billion or $3.70 per share in the same period a year earlier.

Analysts on average had expected earnings of $3.05 per share, according to Thomson Reuters I/B/E/S.

Institutional investors have been shying away from the bond market because of a lack of strong opinions about interest rates and currency moves.

Rival banks Citigroup Inc C.N and JPMorgan Chase & Co JPM.N said a pickup in trading volume in June helped offset slowness in April and May.

"The sustainability of that trend is in question," said Brian Kleinhanzl, a research analyst at Keefe, Bruyette & Woods who rates Goldman a "market perform."

JPMorgan said on Tuesday that the June improvement in bond trading has not carried over to July.

Goldman's net revenue from fixed-income, currency and commodity trading for customers, known as FICC, fell 10 percent to $2.22 billion.

Analysts had expected a bigger decline. Bernstein Research analyst Brad Hintz had estimated $1.8 billion in fixed-income trading revenue for the quarter.

In May, JPMorgan Chase & Co and Citigroup forecasted declines in overall trading revenue closer to 20 percent for the second quarter, compared with the same period last year.

Goldman's net revenue in its investing and lending division jumped 46 percent to $2.07 billion. This included net gains of $1.25 billion from investments in equities.

The bank was also helped by better results in investment banking, where it ranked No. 1 in mergers and acquisitions, as well as equity underwriting, for the first half of 2014, according to Thomson Reuters data.

In equity underwriting, the bank's revenue rose 47 percent to $545 million, helped by Goldman's work on deals including the initial public offering of Ally Financial. ALLY.N

Investment banking revenue overall, which includes M&A, debt underwriting and stock underwriting, rose 15 percent to $1.78 billion.

Goldman executives often say that investment banking is the center of its broader franchise, because those clients also generate revenue for its trading, investment management and lending businesses.

The bank makes most of its money from trading and investing in capital markets. This sets it apart from JPMorgan Chase & Co, Citigroup and Bank of America Corp BAC.N, which have big consumer and corporate lending businesses.

JPMorgan, the biggest U.S. bank by assets, on Tuesday reported an 8 percent decline in second-quarter profit as a pullback in trading of bonds and currencies by big institutions hit revenue in its securities trading business.

On Monday, Citigroup reported a 16 percent drop in trading revenue.

(GNN)(Reuters)(AIP)(Reporting by Anil D'Silva in Bangalore and Lauren Tara LaCapra in New York; editing by Saumyadeb Chakrabarty, Dan Wilchins, and Matthew Lewis)