Tag: federal reserve

Coinbase hangover rattles crypto assets with bitcoin in free fall, BFSI News, ET BFSI

Personal Finance

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The mania that drove crypto assets to records as Coinbase Global Inc. went public last week turned on itself on the weekend, sending Bitcoin tumbling the most since February.

The world’s biggest cryptocurrency plunged as much as 15% on Sunday, just days after reaching a record of $64,869. It subsequently pared some of the losses and was trading at about $56,440 at around 8:25 a.m. in Tokyo Monday.

Ether, the second-biggest token, dropped as much as 18% to below $2,000 before also paring losses. The volatility buffeted Binance Coin, XRP and Cardano too. Dogecoin — the token started as a joke — bucked the trend and is up 7% over 24 hours, according to CoinGecko.

The weekend carnage came after a heady period for the industry that saw the value of all coins surge past $2.25 trillion amid a frenzy of demand for all things crypto in the runup to Coinbase’s direct listing on Wednesday. The largest U.S. crypto exchange ended the week valued at $68 billion, more than the owner of the New York Stock Exchange.

“With hindsight it was inevitable,” Galaxy Digital founder Michael Novogratz said in a tweet Sunday. “Markets got too excited around $Coin direct listing. Basis blowing out, coins like $BSV, $XRP and $DOGE pumping. All were signs that the market got too one way.”

Dogecoin, which has limited use and no fundamentals, rallied last week to be worth about $50 billion at one point before stumbling Saturday. Demand was so brisk for the token that investors trying to trade it on Robinhood crashed the site a few times Friday, the online exchange said in a blog post.

There was also speculation Sunday in several online reports that the crypto plunge was related to concerns the U.S. Treasury may crack down on money laundering carried out through digital assets. The Treasury declined to comment, and its Financial Crimes Enforcement Network (FinCEN) said in an emailed response on Sunday that it “does not comment on potential investigations, including on whether or not one exists.”

‘Price to Pay’
“The crypto world is waking up with a bit of a sore head today,” said Antoni Trenchev, co-founder of crypto lender Nexo. “Dogecoin’s 100% Friday rally was ‘peak party,’ after the Bitcoin record and Coinbase listing earlier in the week. Euphoria was in the air. And usually in the crypto world, there’s a price to pay when that happens.”

Besides the “unsubstantiated” report of a U.S. Treasury crackdown, Trenchev said factors for the declines may have included “excess leverage, Coinbase insiders dumping equity after the direct listing and a mass outage in China’s Xinjiang province hitting Bitcoin miners.”

Growing mainstream acceptance of cryptocurrencies has spurred Bitcoin’s rally, as well as lifting other tokens to record highs. Bitcoin’s most ardent proponents see it as a modern-day store of value and inflation hedge, while others fear a speculative bubble is building.

Interest in crypto went on the rise again after companies from PayPal to Square started enabling transactions in Bitcoin on their systems, and Wall Street firms like Morgan Stanley moved toward providing access to the tokens to some of the wealthiest clients.

Volatility
That’s despite lingering concerns over their volatility and usefulness as a method of payment. Moreover, governments are inspecting risks around the sector more closely as the investor base widens.

Federal Reserve Chairman Jerome Powell last week said Bitcoin “is a little bit like gold” in that it’s more a vehicle for speculation than making payments. European Central Bank President Christine Lagarde in January took aim at Bitcoin’s role in facilitating criminal activity, saying the cryptocurrency has been enabling “funny business.”

Turkey’s central bank banned the use of cryptocurrencies as a form of payment from April 30, saying the level of anonymity behind the digital tokens brings the risk of “non-recoverable” losses.



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Wall Street banks beat earnings estimates, see a boom ahead, BFSI News, ET BFSI

Banking & Finance

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From just a year ago when they provisioned for billions of dollars anticipating huge loan defaults due to pandemic, Wall Street banks are now an ebullient lot.

On Wednesday, executives at Goldman Sachs, JPMorgan Chase and Wells Fargo posted a huge jump in earnings in the January-March quarter and delivered a bullish economic forecast.

Goldman and JPMorgan reported profits roughly five times as high as in the first three months of 2020, thanks to a combination of strong business results and a reduction in the amount of money they had put aside to cover losses on loans. Wells Fargo reported profits that were seven times as high.

JPMorgan

JPMorgan earnings skyrocketed 477% to $4.50 a share. Revenue climbed to $33.12 billion. But earnings got a big boost from JPMorgan releasing $5.2 billion from credit loss reserves.

Consumer banking revenue fell 10% to $6.7 billion. Investment banking revenue more than tripled to $2.9 billion. Fixed income trading revenue grew 15% to $5.8 billion, and equities trading revenue jumped 47% to $3.3 billion. Commercial banking rose 11% to $2.4 billion. Asset management revenue swelled 20% to $4.1 billion.

Goldman Sachs

EPS of $18.60 on revenue of $17.7 billion. Investment banking revenue jumped 73% to $3.77 billion. Fixed income trading revenue climbed 31% to $3.89 billion, and equities trading revenue surged 68% to $3.69 billion. Asset management revenue shot up to $4.61 billion vs. a negative $96 million a year ago. Wealth management revenue grew 16% to $1.74 billion.

Provision for credit losses was a net benefit of $70 million, compared with net provisions of $937 million a year ago.

Wells Fargo

EPS of $1.05 on revenue of $18.06 billion. Provision for credit losses decreased $5.1 billion. Consumer banking revenue was flat at $8.65 billion. Commercial banking revenue fell 12% to $2.2 billion. Corporate and investment banking revenue grew 7% to $3.6 billion. Wealth management revenue rose 8% to $3.5 billion.

The boom ahead

Wall Street banks now see consumers tanked up on stimulus money spending huge and companies rushing to expand by buying or building new businesses, as the US emerges from the Covid-19 pandemic

“It is clear to me that the U.S. is poised for a strong recovery this year, led by consumer spending that is rebounding to pre-Covid levels,” David M Solomon, chief executive of Goldman Sachs, told analysts.

Jamie Dimon, his counterpart at JPMorgan Chase, the country’s largest bank by assets, took a similar view. “We believe that the economy has the potential to have extremely robust, multiyear growth,” Dimon said in a statement. He attributed his outlook to government spending on stimulus and infrastructure, supportive policies from the Federal Reserve and high hopes for the end of the pandemic.

According to an executive, bank earnings reveal a dramatic shift from an unprecedented downdraft in growth to a V-shaped recovery in the economy.

Provisioning

The three banks are set to reduce the cushion they had set aside at the start of the pandemic to withstand continued losses from credit cards, mortgages and other loans they had made.

JPMorgan released $5.2 billion of that credit cushion, and Wells reduced its cushion by $1.6 billion. Wells also noted provisioning for bad loans was at a historic low. Goldman also reduced what it had set aside by about $200 million.



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Fed outage raises questions on Wall Street as services restored, BFSI News, ET BFSI

Personal Finance

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For about four hours Wednesday, Federal Reserve systems that execute millions of financial transactions a day — everything from payroll to tax refunds to interbank transfers — were disrupted by what appeared to be some sort of internal glitch.

Systems were restored by the end of the day, but the outages once again raise questions about the resilience of critical infrastructure that Americans rely on to process payments. The episode follows two significant disruptions to the Fed’s payment services that occurred in 2019.

“It does raise awareness about what their business continuity measures are and what’s going on over a single point of failure that doesn’t have a lot of redundancies. It’s pretty concerning,” said David Hart, president of consulting firm NETBankAudit who was previously a senior bank examiner and IT auditor at the Richmond Fed.

All services were restored by 7:27 p.m. New York time, according to a website operated by the central bank. The outages affected the automated clearinghouse system known as FedACH and the Fedwire Funds interbank transfer service as well as several other systems comprising the U.S. payment infrastructure.

‘Operational Error’
“A Federal Reserve operational error resulted in disruption of service in several business lines,” Jim Strader, a spokesman for the Richmond Fed, said in an e-mailed statement. “We are restoring services and are communicating with all Federal Reserve Financial Services customers about the status of operations.”

The Fed system’s national IT operations are run out of the Richmond reserve bank. The central bank’s payment services website noted the disruptions were discovered around 11:15 a.m. and Strader declined to comment on whether they were a result of system updates or human error, but confirmed that the system maintains operations in other locations.

Inside financial firms, traders were generally calm, still handling transactions. A mood of initial confusion subsided as many realized they weren’t affected, one said.

ACH is a national system that processes batches of electronic funds transfers such as payroll, social security benefits, tax refunds, corporate payments to vendors and utility payments, according to the Fed’s website. The commercial service handled 62.1 million transactions a day on average in 2019 with an average value of $1,802, the latest year for which data are available.

In a posting on its website at 2:46 p.m. the Fed said it was taking steps to ensure the resilience of its services but urged customers to double check that any messages they had sent or received had been reconciled.

FedNow
The disruptions come as the central bank is preparing to take on even more responsibility. It’s separately developing its own same-day settlement payment system called FedNow. It is expected to operate in direct competition with an industry-run payments system started in 2017 by an organization of Wall Street banks, including JPMorgan Chase & Co. and Citigroup Inc.

The Fed’s system has suffered problems before. In 2019, the FedWire interbank funds transfer service went down for about three hours. The Fed blamed the outage on “an internal technical issue,” but declined to provide more details.

Bloomberg News sought additional information about that incident under the Freedom of Information Act, but the request and a subsequent appeal were denied by the Board of Governors.



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Safe-haven dollar softens as risk sentiment recovers, BFSI News, ET BFSI

Personal Finance

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TOKYO: The dollar remained on the back foot on Friday as an improvement in risk appetite sapped demand for the safest assets, with investors taking cheer from U.S. economic data wasn’t as bad as feared.

Wall Street also provided a lift to sentiment, as stocks rebounded after earnings season got off to a strong start and concerns eased around hedge funds selling long positions to cover shorts.

The dollar index was little changed at 90.566 early in the Asian day, after slipping 0.1% overnight.

The gauge is still on track for a 0.4% weekly advance following safety buying at the start of the week amid concerns that President Joe Biden’s fiscal spending package will not be as large as the proposed $1.9 trillion.

However, many analysts expect the dollar to return to the downward trend that saw it lose nearly 7% of its value last year, particularly with the Federal Reserve committed to ultra-easy monetary policy.

“Wide expectations of that huge issuance that’s coming and the support of the Fed mean that we’re looking in the medium-term for further U.S. dollar weakness,” said Michael McCarthy, chief strategist at CMC Markets in Sydney.

“The flipside of the reversal in risk appetite is we’re seeing good support for commodity currencies,” like the Australian dollar, he added.

The Aussie was about flat at 76.75 U.S. cents after rising 0.2% overnight.

The euro was little changed at $1.21175 after edging higher in the previous session.

The dollar advanced 0.1% to 104.335 yen, another traditional safe haven, adding to the previous day’s gains of about 0.2%.

Bitcoin continued to edge higher, trading at $33,899, after surging more than 10% on Thursday.

The world’s most popular cryptocurrency has been consolidating since touching a record high of $42,000 earlier this month.



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