Finance Brief: Clinton Takes Aim at Trump’s Business Practices

Today’s Washington Brief

  • Democratic presumptive presidential nominee Hillary Clinton will scrutinize Donald Trump’s business record on Tuesday. She plans to deliver a critical address on Trump’s record in the private sector, casting him as a shady, self-interested opportunist. (The Wall Street Journal)
  • The Senate could take up the House-passed plan to help Puerto Rico restructure its debt as early as this week. Majority Leader Mitch McConnell (R-Ky.) has said the Senate will vote on the bill before July 1. (Morning Consult)
  • Donald Trump has declined to release his tax returns so far, and it appears he has paid very little to zero income taxes for two years in the early 1990s. He avoided taxes not by illegal activity but rather because of significant real estate losses. (Politico)

Today’s Business Brief

  • The startup trading application IEX gained approval from the Securities and Exchange Commission on Friday, making it an official stock exchange. IEX slows the pace of trading, allowing smaller-scale investors to be more competitive on the virtual trading floor and threatening to disrupt Wall Street’s rapid-fire trading pulse. (The Wall Street Journal)
  • Goldman Sachs is eyeing ordinary American customers as its high-powered bond trading core has slumped since the recession. The bank will offer online-only services to everyday banking consumers — no million-dollar deposits necessary. (The New York Times)
  • Hedge fund Visium Asset Management is shuttering after a high-profile insider trading scandal. One of its top executives, Sanjay Valvani, faces charges for allegedly trading on FDA drug approval tips. (Business Insider)

Today’s Chart Review

Junk Bond Prices
The Wall Street Journal

Mark Your Calendars (All Times Eastern)

Monday
No events scheduled.
Tuesday
Fed Chair Yellen testifies before Senate Banking Committee 10 a.m.
House Rules Committee hearing on financial services appropriations bill 5 p.m.
Wednesday
Fed Chair Yellen testifies before House Financial Services Committee 10 a.m.
House Judiciary Committee hearing on IRS’ Koskinen 10 a.m.
House Small Business Committee hearing on IRS and small businesses 10:30 a.m.
Thursday
Rep. Hensarling speech on Dodd-Frank at the Heritage Foundation 9 a.m.
Senate Banking Committee hearing on bank capital and liquidity regulation 10 a.m.
House Financial Services Committee hearing on terrorist financiers 10 a.m.
House Small Business Committee hearing on overtime rule and small businesses 10 a.m.
Friday
No events scheduled.

 

General

The Coming Week: Gun Votes on Tap, But Changes Unlikely
Fawn Johnson, Morning Consult

The Senate could to take up the House’s bill on Puerto Rico’s debt crisis, H.R. 5278, before July. Consideration of the measure could be as soon as this week, although the pending business in the Senate remains a funding bill for commerce, justice and science-related agencies.

Clinton to Target Trump’s Business Record
Colleen McCain Nelson and Laura Meckler, The Wall Street Journal

Democrat Hillary Clinton will target Donald Trump’s business record on Tuesday, casting the presumptive Republican nominee as self-interested and shady in an effort to undercut one of the central arguments of his campaign. The former senator and secretary of state plans to deliver a pointed critique of her Republican rival’s economic policies and his work in the private sector, broadening her argument that Mr. Trump is temperamentally unfit for the White House, Clinton campaign advisers said.

Where Clinton and Trump Stand on Wall Street
Donna Borak and Henry Williams, The Wall Street Journal

As Donald Trump and Hillary Clinton square off in the presidential election, one big dividing line is Wall Street. The Republican standard-bearer says he wants to rip up the landmark 2010 Dodd-Frank Act enacted in response to the financial crisis.

Economic Gauges Raise Specter of Recession
Ben Leubsdorf, The Wall Street Journal

Gut-wrenching gyrations in financial markets early in the year helped summon the specter of a new recession. Now, warning signs are coming mostly from the U.S. economy itself.

S&P 500 Posts Worst Week Since April as Global Stress Burns Anew
Joseph Ciolli, Bloomberg News

Prices fell and volume surged in a week of heightened anxiety for U.S. investors, whose dreams of reaching a record high anytime soon all but faded away. A streak of six weeks without a 1 percent drop was broken as the S&P 500 Index dropped 1.2 percent to 2,071.22, the worst retreat since April.

‘Brexit’ Could Send Shock Waves Across U.S. and Global Economy
Yian Q. Mui, The Washington Post

Britain’s departure from the European Union could send shock waves across the global economy and threaten more than a trillion dollars in investment and trade with the United States. International policymakers are ramping up their warnings of the dangers of a British exit – popularly known as “Brexit” — from the political and economic alliance that has united Europe for the past four decades.

Scrooge-like Spending Habits of Business Underlie Fed Worries About the Economy
Jeffry Bartash, MarketWatch

One of the worries that keeps Federal Reserve honchos up at night is the weak level of business spending. The reluctance to invest is both a short-term and long-run albatross on the economy.

Stocks Surge With Pound as Brexit Chances Decline; Naira Weakens
James Regan and Lukanyo Mnyanda, Bloomberg News

Global equities rallied and the pound strengthened the most since 2008 on signs the campaign for the U.K to stay in the European Union was gaining momentum. The yen declined with U.S. Treasuries and gold as haven demand eased.

Banking

After 147 Years, Goldman Sachs Hangs a Shingle on Main Street

Nathaniel Popper, The New York Times

You used to need $10 million to become a customer of Goldman Sachs. Now you can get in with a dollar.

Banks Buckle Down for Hard Transition to New Loan-Loss Rule
John Reosti, American Banker

It’s official. After a fierce debate, the Financial Accounting Standards Board has issued its long-awaited and highly controversial Current Expected Credit Loss standard.

Warren as Veep? It Cuts Both Ways for Bankers
Ian McKendry, American Banker

At first blush, the image of Sen. Elizabeth Warren as Hillary Clinton’s vice president might be enough to send bankers fleeing to the hills. The Massachusetts Democrat has proven to be a powerful force in advancing Wall Street reform, including successfully creating the Consumer Financial Protection Bureau.

Personalities Key in Shaping Banks’ Risk Taking, Study Says
Laura Noonan, Financial Times

The personality and talent of bank executives is more important in shaping the risk taking of the institutions they work for than pay, bonuses or education, an analysis of more than 1,500 top US bankers has found. Remuneration accounted for a maximum of 4 percent of the difference in how bankers in similar situations behave, while factors such as education and age accounted for less than 5 per cent of the differences, according to a study by academics in the US, Germany, and the UK.

FSOC Appeals ‘Profoundly Mistaken’ MetLife Ruling
Lalita Clozel, American Banker

The Financial Stability Oversight Council fired another salvo late Thursday in an ongoing legal battle over its decision to designate MetLife as a systemically important financial institution. The Obama administration argued in a brief to the U.S. District Court of Appeals that a ruling in March striking down the designation was “profoundly mistaken.”

Why BofA’s Chief is Optimistic About Big Banks
Dennis Berman, The Wall Street Journal

Big banks have been busy trying to repair themselves, and make money, in this post-financial-crisis era of more regulation and less economic growth. To better understand the challenges banks face, Dennis Berman, financial editor of The Wall Street Journal, spoke with Brian Moynihan, chairman and chief executive of Bank of America.

Financial Products and Investments

IEX Gains SEC Approval for New Stock Exchange
Dave Michaels, The Wall Street Journal

IEX Group Inc. won regulatory approval for a new stock exchange that slows the speed of trading, clinching a hard-fought win over competitors who said its model threatens investor benefits flowing from ever-faster markets. The Securities and Exchange Commission voted Friday to certify IEX as the U.S.’s 13th national stock exchange, giving the startup a license to challenge Intercontinental Exchange Inc., Nasdaq Inc. and Bats Global Markets Inc.

Wall Street Has Been Rocked by an $8 Billion Hedge Fund’s Implosion
Rachael Levy, Business Insider

Visium Asset Management, a multibillion-dollar hedge fund, has imploded in the biggest scandal to hit the industry in years. The fund told investors of its plan to close in a letter Friday.

Investors Fearing ‘Summer Shocks’ Are Hoarding the Most Cash Since 2001
Sue Chang, MarketWatch

The last time fund managers hoarded this much cash, the Arizona Diamondbacks defeated the New York Yankees 4 to 3 to win the World Series. Today the Diamondbacks and the Yankees are struggling in their respective divisions, and by the amount of cash investors are stocking away, one might think that they fear the global markets are melting down too.

IEX’s Next Challenge: Delivering on Its Promises
Dave Michaels, The Wall Street Journal

IEX Group Inc.’s success in gaining approval for a new stock exchange that slows the speed of trading caps off a campaign that brought the company’s gospel of fairer trading to the masses. Now comes the really hard part—proving its business can go mainstream.

Junk Bonds Regain Fans
Sam Goldfarb, The Wall Street Journal

Some investors are turning again to junk bonds, saying their higher yields make them a good bet at a time when many stocks and government bonds appear richly valued. The idea of buying into lower-rated companies with large debt loads at a time of general economic unease and acute concern about a possible U.K. departure from the European Union is anathema to many risk-averse investors.

Humans Strike Back Against Stock Market Robots
John Detrixhe, Bloomberg News

Machines may be taking over the world, but in at least one corner of the markets humans are beating back the robots. Sales traders like Citigroup Inc.’s Samantha Huggins are in demand because they are proving more adept than computer programs at trading big chunks of stock, dubbed block trades.

Housing & GSEs

National Association of Realtors Declares Support for Alternative Credit Scoring
Ben Lane, HousingWire

The National Association of Realtors sent a letter to two members of Congress this week, declaring the organization’s support of alternative credit-scoring models that could be used to open the credit box to previously underserved borrowers. In a letter sent this week to Rep. Ed Royce, R-CA., and Rep. Terri Sewell, D-AL., NAR President Tom Salomone writes that NAR supports the “Credit Score Competition Act of 2015,” which Royce and Sewell introduced last year.

Mortgage Refis Return as Interest Rates Plummet
Annamaria Andriotis and Emily Glazer, The Wall Street Journal

Falling long-term bond yields are pressuring banks, but there is a potential bright spot: Lower rates are spurring people to refinance mortgages and buy new homes. Wells Fargo & Co., the nation’s largest mortgage lender by origination volume, said Thursday that it expects mortgage volume industrywide to be 20% to 25% higher for the year than the roughly $1.5 trillion it initially anticipated.

Taxes

Trump Appears to Have Paid No Taxes for Two Years in Early 1990s
Shane Goldmacher, Politico

Billionaire businessman Donald Trump appears to have paid zero, or near-zero, in personal income taxes in at least two more years in the early 1990s, according to records from New Jersey’s gambling authorities reviewed by POLITICO. Trump’s avoidance of income taxes as described in the documents was not illegal but the result of significant losses his hotel and casino holdings sustained during an economic downtown.

The Interesting Thing That Happened When Kansas Cut Taxes and California Raised Them
Jim Tankersley and Max Ehrenfreund, The Washington Post

In 2012, voters in California approved a measure to raise taxes on millionaires, bringing their top state income tax rate to 13.3 percent, the highest in the nation. Conservative economists predicted calamity, or at least a big slowdown in growth.

Banking Systems & Currencies

Digital Currency Ethereum Nose-Dives After $50 Million Hack
Joseph Adinolfi, MarketWatch

The value of digital currency Ethereum tanked Friday after hackers stole the equivalent of more than $50 million from an organization that controls large amounts of the cryptocurrency. Attackers exploited a security weakness to steal more than 3.5 million Ether tokens from an organization called the DAO, which held about 9.2 million tokens before the attack, according to its website.

A Message from the Electronic Payments Coalition:

More than half of customers want the Durbin Amendment repealed. The Durbin Amendment, a.k.a. “merchant mark-up,” allows big box retailers to pocket $8 billion dollars a year from customers’ purchases. That’s $32 billion since Congress passed this law and retail groups are back on Capitol Hill looking to increase their merchant mark-up even more. Learn more from the Electronic Payments Coalition.

Opinions, Editorials & Perspectives

Jeb Hensarling: How We Can Hold Wall Street Accountable
Jeb Hensarling, The Dallas Morning News

Nearly seven years after the Great Recession ended, the economy still isn’t working for millions of working Americans. Their paychecks remain stagnant; their savings have declined.

Don’t Let Facebook Likes Sway Credit Decisions
Yafit Lev-Aretz and Nizan Geslevich Packin, American Banker

What if you had to choose between keeping your Facebook friends and getting a home equity line of credit? What if your student loans could not be refinanced until you cut certain relatives out of your digital life?

The ‘Preferred’ Path to Higher Returns
Burton G. Malkiel, The Wall Street Journal

Now that central banks have pushed short-term interest rates to zero or even to negative readings, all asset prices have risen to unusually high levels and prospective future returns appear to be unattractively low. In a world in which bonds no longer provide safe and steady returns, what is the investor seeking moderate risk and a reliable stream of income to do?

The Real Risk in the Market is Staying Out of It
Barry Ritholz, The Washington Post

Some investors, having been repeatedly mangled by events not of their making, never fully recovered from that 57 percent crisis collapse in the stock market. They are now dedicated to not letting any of that ever happen to them again.

A Message from the Electronic Payments Coalition:

Big box retailers are not held to any federal standards to protect their customers, yet 90% of consumers agree they should be held to similar standards as banks and financial institutions when it comes to keeping customer data secure and private. The Data Security Act of 2015 would help protect consumers but retailers are fighting the bill to increase their bottom line. Let’s put consumers first.

Research Reports, Issue Briefs & Case Studies

Measures of Financial Inclusion — A Central Bank Perspective
Bank for International Settlements

Financial inclusion, broadly defined as access to financial services, is expanding globally but remains a key issue for policymakers worldwide. In particular, it is an important public policy goal that directly relates to central banks’ key objectives and activities (Mehrotra and Yetman (2015)).

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