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Market Cap £148.55bn
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Position in Universe 52nd / 7151

Reuters Insider - Breakingviews: Bank watchdogs evolving

Tue 8th March, 2016 6:56pm
Click the following link to watch video:                       
 Source:             Thomson Reuters                                   
 Description:        March 8 - Eight years after the financial crisis, 
                     Richard Beales and Antony Currie discuss signs of 
                     regulators relenting in small ways – but why they 
                     still wouldn't let Wells Fargo buy Amex.          
(To access all exclusive Reuters Insider programming visit: 
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Transcript (May be auto-generated)

                 It's eight years since the financial crisis. Then, we had the inevitable 
regulatory backlash, big crackdown. Antony, are we getting to see a few cracks? 
We had the head of the Office of the Controller of the Currency saying 
yesterday, maybe in a couple of areas, regulation has been too tough and banks 
have backed away from businesses that's actually important. Yes, he- this is 
Thomas Curry – no relation, obviously – who said at a conference yesterday, 
look, it's regrettable that we're seeing certain things disappear for certain 
segments of the population. He's basically talking about banks getting out of 
correspondent banking, which basically means transferring money across boards. 
So if you had a relationship bank say between or a US bank has a relationship 
bank, say, in Mexico, people can transfer funds to the families or whatever in 
Mexico. If you're worried about money laundering, you cut off that relationship 
then they can't do that. But you're cutting it off because, otherwise, you get 
sued by the US government and you end up paying a billion Dollars for each 
offense. Exactly. And we've seen many times in various, well, it's not just 
money laundering, but there's a lot of money being paid by banks at the moment 
after the financial crisis. And you're right. And the rules he's talking about 
actually date back to- actually, 15 years. Right, but enforcement has been tough
more recently. Yes, it's got to watch- dating back to the 1970's; they got 
tougher after 9/11 and even tougher since the financial crisis. One bank, M&T 
Bank, even had its deal with Hudson City Bank got delayed by three years. It was
only approved last year. Most bank deals take, well, probably up to a year to 
approve; this took three. And anti-money laundering systems being not up to 
snuff was the reason they're gay. So M&T Bank has spent hundreds of millions of 
Dollar. Right, just to satisfy regulators of the government. Just to satisfy 
regulators, they've been checking things over with some clients five times to 
make sure they got it right. And it's really has had a big impact on how banks 
then think about doing businesses. They have to spend more money, it reduces 
their income, and also of course it makes it harder for them to justify doing 
some of it- Right, but banks are not going to venture back into grey areas 
without much clearer signals than this. Exactly. Right. One other big picture 
regulatory question - in fact, we haven't heard about the regulatory aspect of 
this – we had a report earlier in the week that American Express might be 
thinking about selling itself to Wells Fargo. Yes. But to any big bank, this is 
adding huge pile assets to an already enormous bank, this would be- This would 
be- absolutely. This would have been a great deal for Wells Fargo. Well, it's 
still a great deal for Wells Fargo but it could have been consummated far more 
easily 10 years ago. Right. Right, and there are good reasons for Wells Fargo to
consider doing it. It's behind the curve in building up credit card businesses. 
And on credit cards, the returns on credit cards, as long as you're doing it 
properly, are better than most other lending you can get to prime customers. 
Let's forget about subprime borrowers. And also, because it's got deposits – 
well, Amex has some but Wells Fargo has many more – it could cut a lot of 
funding costs for Amex as well. And that's getting into what it could do with 
the business, right? So great idea- So that's great, but now when you have too 
big to fail, you have surge charges or capital surcharges on big banks, and Amex
has how many assets? Amex has got I think $150 billion of assets. Now, within 
that- within the sort of $50 billion to $250 billion of assets, financial firms 
can consider mergers and possibly get them consummated. M&T Bank, for example, 
its merger- well, it- But Wells is way bigger than that. Wells, far bigger, way 
over the $250 billion so called major SIFI buffer. And regulators have said in 
several occasions- Basically, that's not going to happen. I think you know, it 
creates a bank over $250 billion of assets or anything where a bank that big 
goes and buys another institution just basically expect a no-no. It's not a 
definitive no but expect a no-no. So this is a really, really odd rumor. But I 
think part of it comes in fact we've got Amex's investor day this week. Right. 
They've been in trouble. They had an activist investor in last year for a few 
months. They lost the Costco business - possibly good, it wasn't going to- 
Right, so they have questions to answer- A lot of focus on what exactly they are
and aren't doing. Ken Chenault and his team may well address that on Thursday. 
But the root of the merger rumor, it's another example of how the M&A boom is 
really getting to the top of the cycle. When deals really you should be looking 
at going 'This can't happen; regulators won't allow it at all' becomes a talking
point. Alright. Thanks, Antony. Interesting developments. We'll have more 
Breakingviews for you tomorrow
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