Finance Brief: Yellen Supports ‘Thorough Investigation’ of Wells Fargo Accounts Scandal

Washington Brief

  • Federal Reserve Chair Janet Yellen called President Donald Trump’s goal of 3 percent annual growth “quite challenging.” Yellen told the Senate Banking Committee that achieving the objective would require unprecedented productivity growth and large adjustments to tax, labor and education. (Reuters)
  • Trump’s budget proposal for fiscal year 2018 wouldn’t slash the federal deficit at the level projected by the White House, according to an analysis by the nonpartisan Congressional Budget Office. The CBO said enacting Trump’s spending plan would lower the federal deficit to $720 billion by 2027, compared with a $16 billion surplus forecast by the White House. (The Wall Street Journal)
  • Trump nominated Rostin Behnam, a Senate Democratic aide, to be a member of the Commodity Futures Trading Commission. Behnam’s nomination was sent to the Senate, where two Republican nominees are also awaiting confirmation for the five-member commission.

Business Brief

  • Yellen told the Senate Banking Committee that the Wells Fargo scandal that created millions of phony bank and credit card accounts was “egregious and unacceptable.” Yellen said an investigation is underway and the Fed is prepared to use its authority for punitive action if necessary. (American Banker)
  • JPMorgan Chase & Co.’s second-quarter earnings exceeded Wall Street estimates. The largest U.S. bank reported a profit of $7.03 billion, and said its earnings included $406 million in after-tax benefits from a legal settlement. (CNBC)
  • House Democrats criticized a draft bill authored by Rep. Ann Wagner (R-Mo.) that would eliminate the Labor Department’s fiduciary rule, characterizing it as devastating to poor people and senior citizens. Wagner said she still hopes to get bipartisan support and expects to introduce the bill as early as this month. (Investment News)

Chart Review

Events Calendar (All Times Local)

Friday
House Financial Services subcommittee hearing on fixed income market structure 9:15 a.m.

 

General

Trump Budget Would Not Balance in 10 Years, CBO says
Kate Davidson, The Wall Street Journal

The Congressional Budget Office estimates President Donald Trump’s budget proposal would shrink deficits by nearly a third over the coming decade, but not nearly as much as the White House projects. Under the Trump budget, the federal deficit would total $720 billion by 2027, compared with a $16 billion surplus estimated by the White House, the CBO said in an analysis of the president’s budget released Thursday.

Yellen says 3 percent U.S. growth ‘quite challenging’ in the coming years
Howard Schneider, Reuters

It would be “quite challenging” for the United States to reach the 3 percent growth target set by President Donald Trump, Federal Reserve Chair Janet Yellen told a Senate panel on Thursday in a hearing focused on regulatory reform and a discussion of lagging productivity. Trump has pledged to boost annual growth to 3 percent, the average for much of the last 70 years, and predicated an earlier tax plan on reaching that figure.

Forecasters Lower Economic Outlook Amid Congressional Gridlock
Josh Zumbrun, The Wall Street Journal

Early optimism that President Donald Trump would be able to revitalize the U.S. economy is fading as Congress struggles to pass major legislation. Forecasters in The Wall Street Journal’s monthly survey of economists marked down their outlooks for growth, inflation and interest rates this month, a partial reversal of a postelection bump.

Bonds Gain, Stocks Steady as CPI Tests Fed Resolve: Markets Wrap
Eddie Van Der Walt and Adam Haigh, Bloomberg

Bonds rebounded while U.S. stock futures were steady as U.S. inflation data and bank earnings roll in, serving as a test for the strength of the economy. Treasuries headed for their first weekly gain in three, bolstered by Fed Chair Janet Yellen’s gradualist tone to policy tightening as inflation languishes below the central bank’s 2 percent target.

Banking

Regulators not done with Wells: Yellen
John Heltman, American Banker

Federal Reserve Chair Janet Yellen said that she supports a “thorough investigation” of what led to the Wells Fargo phony-accounts scandal and that the Fed stands prepared, if needed, to take additional action against the firm. In her semiannual testimony before the Senate Banking Committee, Yellen was questioned at length by Sen. Elizabeth Warren, D-Mass., about the Wells affair.

JPMorgan smashes Wall Street estimates
Evelyn Cheng, CNBC

JPMorgan Chase reported second-quarter earnings that beat on both the top and bottom line Friday morning, as strong lending results offset declines in trading. Earnings per share: $1.82 versus $1.58 estimated by Thomson Reuters analysts’ consensus.

Financial Products and Investments

Democrats diss draft legislation to scrap DOL fiduciary rule, set best-interest advice standard for brokers
Mark Schoeff Jr., InvestmentNews

Democrats rejected on Thursday draft legislation to kill the Labor Department’s fiduciary rule and replace it with an investment-advice standard for brokers contained in the measure. In a two-hour hearing of a House Financial Services subcommittee, Democratic lawmakers defended the DOL regulation, which requires financial advisers to act in the best interests of their clients in retirement accounts.

LPL to roll out new mutual fund platform as DOL fiduciary rule takes effect
Greg Iacurci, InvestmentNews

LPL Financial announced Thursday it plans to roll out a new mutual fund platform to advisers early next year to eliminate perceived conflicts of interest in compensation as the Labor Department’s fiduciary rule is set to take full effect. LPL, the largest independent broker-dealer in the U.S., told its 14,000 financial advisers the Mutual Fund Only platform would standardize their upfront and trailing compensation for mutual fund sales, and slightly reduce the number of fund families available to clients.

Housing and GSEs

U.S. mortgage quality improves, but foreclosures on the rise
Pete Schroeder, Reuters

More Americans were keeping up with their mortgages at the beginning of 2017 but the number of foreclosures is also on the rise, a government report said on Thursday. The Office of the Comptroller of the Currency said that 95.6 percent of first-lien mortgages were current or performing in the first quarter, up from 94.7 percent in the last three months of 2016.

Taxes

House panel approves bill to prevent abusive IRS seizures
Naomi Jagoda, The Hill

The House Ways and Means Committee on Thursday approved bipartisan legislation that would limit when the IRS can seize taxpayer funds. The legislation, sponsored by Reps. Peter Roskam (R-Ill.) and Joe Crowley (D-N.Y.) passed the committee by voice vote.

GOP Tax Writers Eye Tightening Pass-Through Rate Rules
Ryan Rainey, Morning Consult

Republican tax writers are considering writing rules into their reform package aimed at preventing large companies from taking advantage of pass-through business tax rates intended for small businesses, Rep. Peter Roskam said Thursday. Roskam, an Illinois Republican and chairman of the House Ways and Means subcommittee on tax policy, said following a panel hearing on small business taxation that Republicans are “very mindful of some of the concerns in terms of anti-abuse rules on the pass-through treatment.”

Financial Technology

Sindeo investor saves fintech mortgage broker from going under
Brad Finkelstein, American Banker

Tech-savvy mortgage broker Sindeo is back in business, following an acquisition by Renren, a Chinese social media company and an investor in U.S.-based fintech firms including Social Finance and LendingHome. Less than a month ago, San Francisco-based Sindeo was on the brink of going out of business.

What Santander’s latest bets say about the future of fintech
Bryan Yurcan, American Banker

Need more evidence that banks are bullish on AI? Just look to Santander Group’s announcement Wednesday that its venture capital arm has taken stakes in two startups in the artificial intelligence space.

Opinions, Editorials and Perspectives

Heartland’s Struggling Economy Shows That the U.S. Needs More Good Jobs
Andrew Schwartz, Morning Consult

There is no secret recipe to creating good jobs, but it surely does not involve less investment in workers and decreased support for the businesses that hire them. Overtime protections and increased bargaining power through unions help ensure workers get a fair share of the profits.

National Wealth Still Depends on Making Some Stuff
Noah Smith, Bloomberg

In general, modern-day economists tend to ignore old schools of economic thought. The main reason is that economists before World War II typically used words instead of mathematics. Another reason is that old, radical ideas are often assumed to have been discredited.

Modern-day NAFTA must account for modern financial services firms
Peter Matheson, The Hill

Free and fair trade agreements, like the North American Free Trade Agreement (NAFTA), expand opportunities for American companies to compete in global markets. Through them, the Trump administration can meet its stated goals to increase exports, create American jobs and boost U.S. economic growth.

Research Reports

How hard should we push the poor to save for retirement?
Andrew G. Biggs, American Enterprise Institute

More than half of U.S. states are working to establish programs what would automatically enrollment in Individual Retirement Accounts (IRAs) workers who are not offered a retirement plan by their employer. These programs are designed to address a perceived shortfall of retirement saving, particularly among low-wage workers who are less likely to be offered an employer-sponsored plan.