Finance Brief: Goldman Sachs Misses Mark in Q1, Lowering Bank Optimism in Trump Era

Washington Brief

  • Vice President Mike Pence said a bilateral trade pact is a near-term goal coming out of the U.S. economic dialogue with Japan. His remarks undercut attempts by Japanese officials to avoid specific discussions of bilateral agreements during Pence’s visit. (Reuters)
  • President Donald Trump predicted speedy advancement of tax legislation, saying “we’re going to surprise you” with the pace. His comments, which did not mention a specific deadline, come after Treasury Secretary Steven Mnuchin’s remarks that an August deadline is “highly aggressive to not realistic.” (CNBC)
  • The Supreme Court heard oral arguments in a case against Santander Consumer USA that could determine whether Santander should be considered a regulated debt collector following the company’s purchase of auto loan debts it had been hired by CitiFinancial to collect. (The Hill)

Business Brief

  • Goldman Sachs trading fell short of analysts expectations in the first quarter of 2017, with revenues from its debt-trading business little changed compared to the same period last year. Investment banking units at JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. exceeded expectations. (Financial Times)
  • A deal between PayPal Holdings Inc. and Alphabet Inc.’s Android Pay system will allow consumers to use their PayPal balances when shopping at brick-and-mortar stores that use Android Pay. (The Wall Street Journal)
  • Americans for Affordable Products, a coalition opposing the House GOP border adjustment tax plan, criticized Boeing’s financing facilitated by the Export-Import Bank, which the group frames as “corporate welfare.” Boeing is a key supporter of the border tax provision. (The Washington Examiner)

Chart Review

Events Calendar (All Times Local)

Wednesday
Hyman P. Minsky annual economic conference 9 a.m.
IMF/World Bank meetings in Washington 9 a.m.
Heritage Foundation event on U.S.-U.K. trade relations after Brexit 10 a.m.
Thursday
SEC officials speak at Global Privacy Summit 8 a.m.
American Enterprise Institute event on Europe and pro-growth agenda 8:30 a.m.
IMF/World Bank meetings in Washington 8:45 a.m.
Brookings Institution event with Bank of Mexico governor 9:15 a.m.
National Economists Club event with American Action Forum’s Doug Holtz-Eakin 12 p.m.
American Enterprise Institute event on postcrisis economics 5 p.m.
Tax Foundation “Tax Freedom Day” event 6 p.m.
Friday
IMF/World Bank meetings in Washington 9 a.m.

 

General

Pence kicks off Japan talks, both sides seek ‘near term’ results
Roberta Rampton and Minami Funakoshi, Reuters 

U.S. Vice President Mike Pence on Tuesday put Japan on notice that Washington wants results “in the near future” from talks it hopes will open markets to U.S. goods, adding that the dialogue could lead to negotiations on a two-way trade deal. U.S. President Donald Trump and Prime Minister Shinzo Abe arranged the economic dialogue between their deputies at a Washington summit in February, soon after Trump took office.

Trump’s Deficit Crusade Overshadows Xi’s Investment Treaty Pitch
Bloomberg News

China’s President Xi Jinping and his U.S. counterpart Donald Trump appear to be operating on vastly different time scales when it comes to bilateral economic relations. Team Trump is looking for “tangible results” to reduce the trade deficit “quite noticeably” within 100 days of the Mar-a-Lago meeting.

US Treasury chief seeks to allay fears over Trump
Shawn Donnan et al., Financial Times 

US Treasury secretary Steven Mnuchin triggered a brawl over protectionism during his first overseas meeting last month when he blocked fellow G20 finance ministers from issuing a longstanding exhortation against erecting trade barriers. At his second international outing he seems intent on steering the discussion on to less slippery terrain.

European Stocks Advance as Haven Demand Eases: Markets Wrap
V Ramakrishnan and Cecile Gutscher, Bloomberg News

Futures on the S&P 500 rose 0.3 percent after the underlying gauge slipped 0.3 percent Tuesday.

Banking

Goldman earnings miss punctures banking sector optimism
Ben McLannahan, Financial Times 

Goldman Sachs punctured some of the optimism surrounding US bank stocks in the wake of the election of Donald Trump, revealing a poor quarter for bond trading that fell well short of analysts’ expectations. Investors were primed for a bright update from Goldman, following better-than-forecast figures from the investment banking units of JPMorgan Chase, Citigroup and Bank of America.

Morgan Stanley’s Results Climb on Trading Bump
Liz Hoffman, The Wall Street Journal 

Morgan Stanley said its quarterly earnings rose, the last of the big Wall Street banks to report numbers that were better than a year ago. The New York-based firm reported a profit of $1.93 billion, or $1 a share.

Why Bank of America and other banks aren’t paying you more for your deposits
Deon Roberts, The Charlotte Observer 

Bank of America customers looking for the Charlotte company to start paying savers more in interest will have to keep waiting. Last month marked the third time the Federal Reserve has raised interest rates since the financial crisis, but Bank of America still hasn’t passed on those increases to many of its customers.

Financial Products and Investments

Supreme Court grapples with definition of ‘debt collector’
Lydia Wheeler, The Hill 

The Supreme Court wrestled Tuesday with whether federal regulations for debt collectors should extend to companies that purchase debts. Justice Elena Kagan wanted to know why Santander Consumer USA, the company at the center of the case, should no longer be considered a debt collector that’s regulated just because it purchased the auto loan debts it had been hired by CitiFinancial to collect.

Supreme Court skeptical about SEC’s powers of ‘disgorgement’
Robert Barnes, The Washington Post 

The Supreme Court indicated Tuesday that the federal government does not have the wide power it claims in pursuing the ill-gotten profits of fraudulent behavior. Justices across the board were at least skeptical of the Securities and Exchange Commission’s claim that it is not bound by a five-year statute of limitations when it seeks “disgorgement,” or the return of profits made from illegal behavior.

Scaramucci Says ‘I’m Unemployed,’ SkyBridge Deal to Close Soon
Simone Foxman, Bloomberg News

Anthony Scaramucci said his status with the Trump administration remains unclear and that his deal to sell his firm should be completed in the next several weeks. “I’m unemployed,” Scaramucci said in an interview Tuesday on Bloomberg TV and radio.

Banks Rack Up Advisory Fees as Fiduciary Rule’s Future Hangs
Michael Wursthorn, The Wall Street Journal 

An Obama-era retirement-savings rule is in limbo, but investors already are pouring their retirement savings into brokerages’ promise of conflict-free financial advice in exchange for a fee.

Even supporters of DOL fiduciary rule call for modifications
Mark Schoeff Jr., InvestmentNews

Even supporters of the Department of Labor’s fiduciary rule are still looking to tweak the measure. For instance, the Investment Adviser Association wants the regulation modified so that advisers who are already fiduciaries can promote their services to prospective clients without fiduciary responsibility being attached to the pitch.

Housing and GSEs

Experts: Lackluster housing construction growth is disappointing
Kelsey Ramirez, HousingWire

Housing starts showed lackluster growth in March as the seasonally adjusted annual rate dropped 6.8%, disappointing economists and leaving the housing market lacking in new housing supply. Experts explained new construction activity hit its second lowest level over the past six months at a time when the market is in the most need of new housing inventory.

Taxes

Trump: ‘We’re going to surprise you’ with speed of tax reform
Jacob Pramuk, CNBC

Donald Trump’s top economic aides have recently walked back expectations for how quickly tax reform will happen, but on Tuesday, the president put the pressure back on. “So we’re in very good shape on tax reform. We have the concept of the plan. We’re going to be announcing it very soon,” Trump said at Snap-on headquarters in Wisconsin.

Boeing’s Export-Import Bank subsidies targeted in battle over House tax plan
Joseph Lawler, The Washington Examiner 

Opponents of the House Republican plan to adjust corporate taxes at the border are targeting a familiar conservative target in the industry lobbying battle: The financing Boeing receives from the Export-Import Bank. Americans for Affordable Products, a coalition of retailers and other importers created to fight the House GOP’s proposed import tax, on Tuesday promoted research touting the subsidies received by the corporations in a rival coalition that favors the tax plan, including the credit that Ex-Im has facilitated for Boeing.

Currency Traders Spot Fatal Flaw in Republicans’ Border Tax Plan
Andrea Wong, Bloomberg News

In Washington D.C., one of the selling points of an ambitious border-tax plan rests on a key economic assumption: The dollar will appreciate enough to offset any increase in the cost of cheap, imported goods that so many Americans have come to rely on. It’s just Econ 101, backed by well-established macroeconomic theory.

Financial Technology

PayPal Signs New Android Deal to Speed Up Store Checkout
Peter Rudegeair, The Wall Street Journal 

PayPal Holdings Inc. said Tuesday that it will make its offerings available on Alphabet Inc.’s Android Pay, marking one of the payment company’s biggest steps to bringing its digital wallet to physical stores. Starting in a few weeks, customers of the San Jose, Calif.-based company will be able to use their PayPal balances to shop at store locations of Walgreens Boots Alliance Inc., Dunkin’ Brands Group Inc., and other traditional retailers that enable in-store payments through Android devices, said Bill Ready, PayPal’s chief operating officer, in an interview.

Mastercard Launches Fast Payments on Facebook Messenger
AnnaMaria Andriotis, The Wall Street Journal 

Payment companies are rushing to speed up your check out. Mastercard said Tuesday that it is adding a new payments option to Facebook Messenger, the social-media company’s messaging service.

Bitcoin Exchanges Hit Snags
Gregor Stuart Hunter, The Wall Street Journal 

Bitcoin suffered a series of setbacks over the past few days, when the biggest exchange said it couldn’t enable customers to withdraw or deposit money except in other virtual currencies, while another exchange said a technical glitch sparked a crash in prices that caused investor losses.

Opinions, Editorials and Perspectives

A Depression-era law could get a new life under Trump. Here’s what it should look like.
Editorial Board, The Washington Post 

The Trump administration is more than halfway through the 120-day review of financial regulation that the president ordered on Feb. 3. Time flies! And the hot new idea is, well, an old idea: the Glass-Steagall Act, a Depression-era law which, until its repeal in 1999, separated federally insured commercial banks from risk-taking investment banks.

Why Are Republicans Making Tax Reform So Hard?
Steve Forbes et al., The New York Times

In the aftermath of the health care blowup, President Trump and the Republicans need a legislative victory. Tax reform probably should have gone first, but now is the time to move it forward with urgency.

The new Democrat argument on tax reform will be a tough one for Trump to deal with
Andrew Prokop, Vox 

President Donald Trump’s tax reform effort has many problems. The issue itself is fiendishly complex, affecting a host of different interest groups who are already lobbying furiously. House Speaker Paul Ryan’s framework for a bill is tremendously unpopular in the Senate. And the president himself has sent mixed signals, lately saying he wants to give health care another shot rather than moving on.

America’s tax reform plan requires a road map
Editorial Board, Financial Times 

The list of issues on which Donald Trump has promised rapid and radical reform, only to back away, lengthens almost daily. This week’s retreat was delivered by Steven Mnuchin, US Treasury secretary, who conceded that fundamental tax reform would be all but impossible before the administration’s August target date.

Here’s Why a Border Tax Won’t Jack Up Import Costs — At Least in Theory
Robb Mandelbaum, Forbes 

It’s that dreaded day of spring, when millions of business owners rush to file their … extensions, so they can put off the drudgery of actually completing their federal tax returns until October. But spring is a season of renewal, so today we’ll take a peek at business taxes as they could be, if some in Washington have their way.

Research Reports

Navigating Changes in Corporate Tax Regimes
S&P Global 

U.S. corporate tax reform will invariably create winners and losers, but a border adjustment tax is a logical amendment to the complex tax code, according to a collection of reports published by S&P Global’s economists and analysts today. The articles analyze the advantages and drawbacks of adopting a “destination-based cash-flow tax” regime (DBCFT), more commonly known as the border adjustment tax.

Briefings

Finance Brief: Week in Review & What’s Ahead

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. While the report does not call for a full repeal of Volcker Rule limits on proprietary trading, it recommended exempting small institutions from the Dodd-Frank regulation.

Finance Brief: CFPB Proposes Changes to Prepaid Card Rule

The Consumer Financial Protection Bureau announced plans to make changes to its prepaid card rule, with public comments on the proposals due within 45 days. The CFPB’s proposals would adjust the rule to require consumers register any prepaid cards before filing a complaint, and would allow providers to send disclosure forms to consumers digitally in some cases.

Finance Brief: Warren Says Democrats Open to Loosening Regulations for Community Banks, Credit Unions

Sen. Elizabeth Warren (D-Mass.) said Senate Democrats are open to working with Republicans on “targeted” measures that would ease regulations affecting community banks and credit unions. Warren, who has shown little willingness to work with the GOP on loosening financial regulations, said she remains opposed to proposals that would limit consumer protections or weaken regulations for big banks.

Finance Brief: Treasury Department Recommends Changes to CFPB, Volcker Rule

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. The report does not call for a complete repeal of Volcker Rule limits on proprietary trading but instead proposes exempting small institutions from the Dodd-Frank regulation.

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