Tag: Goldman Sachs

More US finance giants tiptoe into crypto assets, BFSI News, ET BFSI

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NEW YORK: Investing in bitcoin and other digital currencies remains a risky game where the rules could change significantly, but the payoff could be big.

In response to this dilemma, several leading US financial heavyweights are staying on the sidelines, while an increasing number are proceeding cautiously into the growing world of crypto assets.

“My own personal advice to people: Stay away from it,” JPMorgan Chase Chief Executive Jamie Dimon said recently, before adding, “That does not mean the clients don’t want it.”

JPMorgan, the biggest US bank by assets, is currently assessing how it can help clients transact in cryptocurrency, Dimon said last month at the bank’s annual meeting.

Formerly something of an investment sideshow dominated by computer geeks, cryptocurrencies are sparking greater interest among mainstream investors after a big jump in bitcoin prices in 2020 and early 2021.

On Thursday, the venerable giant State Street announced the creation of a new digital finance division.

On Wednesday, the head of online trading firm Interactive Brokers vowed to establish online trading of cryptocurrencies on the platform by the end of the summer.

Like its rivals Charles Schwab and Fidelity, Interactive Brokers does not now offer bitcoin trading on its platform, although it does give clients the option to invest in some assets that include cryptocurrencies or bitcoin futures.

Investors who want to trade bitcoin can currently turn to Robinhood or the cryptocurrency specialist Coinbase.

ForUsAll, a platform that manages retirement accounts for small businesses, on Monday announced an agreement with Coinbase that allows clients to invest up to five percent of their balances in cryptocurrencies.

Investment bank Morgan Stanley in March said it would allow wealthier clients to invest in bitcoin funds, while Goldman Sachs recently established a team dedicated to trading cryptocurrencies.

The chief executives of Wells Fargo, Citigroup and Bank of America said at a congressional hearing in late May that they are approaching the cryptocurrency landscape with caution.

Fidelity Investments, which established a digital assets division in 2018 to execute cryptocurrency trades for hedge funds and other institutional investors, filed papers with US securities regulators for a bitcoin exchange traded fund (ETF).

The move could potentially expand cryptocurrency investments to a broader range of individual investors.

Tougher rules ahead?
Still, many financial players are reluctant to dive into an investment realm associated with black markets that has sparked interest from US and global regulators.

There is also remarkable volatility, with bitcoin beginning 2021 at around $30,000 and hitting $63,000 in April before falling back to $34,000 in June.

“Speculators and those suffering from FOMO (the ‘fear of missing out’) will surely continue to flock to cryptos in the hopes of achieving huge returns,” said Ian Gendler of research firm Value Line.

But Gendler urges clients to avoid cryptocurrency investments, citing the elevated risk and the lack of a tangible asset compared with putting money into commodities or a company. Bitcoin and other digital money is also not backed by governments, he noted.

“Cryptocurrencies are only worth what the next investor is willing to pay,” he said.

Still, many in finance do not see cryptocurrency as a transient phenomenon.

“We do believe bitcoin, and more broadly crypto assets, are a new and emerging asset class that will likely be here to stay,” said Chris Kuiper, vice president at CFRA Research.

CFRA expects “the large banks as well as smaller financial institutions to continue to adopt them, particularly as the infrastructure and legal/regulatory framework continues to be built out,” Kuiper added.

The Basel Committee, which coordinates regulation among central banks, this week proposed new rules that would require banks to set aside capital for cryptocurrency investments.

Gary Gensler, the new head of the Securities and Exchange Commission, has also said he wants to bolster protections for cryptocurrency investors, telling CNBC that such investors “don’t have full protections that they have in the equity markets or in the commodity futures market.”



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Bank regulators plot toughest capital rule for bitcoin, BFSI News, ET BFSI

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By Huw Jones and Tom Wilson

LONDON, – Banks must set aside enough capital to cover losses on any bitcoin holdings in full, global regulators proposed on Thursday, in a “conservative” step that could prevent widescale use of the cryptocurrency by big lenders.

The Basel Committee on Banking Supervision, made up of regulators from the world’s leading financial centres, proposed a twin approach to capital requirements for cryptoassets held by banks in its first bespoke rule for the nascent sector.

El Salvador has become the world’s first country to adopt bitcoin as legal tender even though central banks globally have repeatedly warned that investors in the cryptocurrency must be ready to lose all their money.

Major economies including China and the United States have signalled in recent weeks a tougher approach, while developing plans to develop their own central bank digital currencies.

The Swiss-based Basel committee said in a consultation paper that while bank exposures to cryptoassets are limited, their continued growth could increase risks to global financial stability from fraud, cyber attacks, money laundering and terrorist finance if capital requirements are not introduced.

Bitcoin and other cryptocurrencies are currently worth around $1.6 trillion globally, which is still tiny compared with bank holdings of loans, derivatives and other major assets.

Basel’s rules require banks to assign “risk weightings” to different types of assets on their books, with these totted up to determine overall capital requirements.

For cryptoassets, Basel is proposing two broad groups.

The first includes certain tokenised traditional assets and stablecoins which would come under existing rules and treated in the same way as bonds, loans, deposits, equities or commodities.

This means the weighting could range between 0% for a tokenised sovereign bond to 1,250% or full value of asset covered by capital.

The value of stablecoins and other group 1 crypto-assets are tied to a traditional asset, such as the dollar in the case of Facebook’s proposed Diem stablecoin.

Nevertheless, given cryptoassets are based on new and rapidly evolving technology like blockchain, this poses a potentially increased likelihood of operational risks which need an “add-on” capital charge for all types, Basel said.

‘UNIQUE RISKS’

The second group includes cryptocurrencies like bitcoin that would be subject to a new “conservative prudential treatment” with a risk-weighting of 1,250% because of their “unique risks”.

Bitcoin and other cryptocurrencies are not linked to any underlying asset.

Under Basel rules, a 1,250% risk weight translates into banks having to hold capital at least equal in value to their exposures to bitcoin or other group 2 cryptoassets.

“The capital will be sufficient to absorb a full write-off of the cryptoasset exposures without exposing depositors and other senior creditors of the banks to a loss,” it added.

Joseph Edwards, head of research at crypto brokerage Enigma Securities, said a global regulatory framework for cryptoassets is a positive given that banks in Europe are divided over involvement in the sector.

“If something is to be treated as an universal asset, it effectively needs to meet quorum with regards to how many parties will handle it. This should move the needle somewhat on that,” Edwards said.

Bitcoin gained after Basel’s announcement, trading up 1.5% at $37,962 at 1053 GMT.

Few other assets that have such conservative treatment under Basel’s existing rules, and include investments in funds or securitisations where banks do not have sufficient information about their underlying exposures.

The value of bitcoin has swung wildly, hitting a record high of around $64,895 in mid-April, before slumping to around $36,834 on Thursday.

Banks’ appetite for cryptocurrencies varies, with HSBC saying it has no plans for a cryptocurrency trading desk because the digital coins are too volatile. Goldman Sachs restarted its crypto trading desk in March.

Basel said that given the rapidly evolving nature of cryptoassets, a further public consultation on capital requirements is likely before final rules are published.

Central bank digital currencies are not included in its proposals.

(Reporting by Huw Jones and Tom Wilson Editing by Rachel Armstrong and Alexander Smith)



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HSBC CEO says Bitcoin not for us, BFSI News, ET BFSI

Banking & Finance

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HSBC has no plans to launch a cryptocurrency trading desk or offer the digital coins as an investment to customers, because they are too volatile and lack transparency, its Chief Executive Noel Quinn told Reuters.

Europe’s biggest bank’s stance on cryptocurrencies comes as the world’s biggest and best-known, Bitcoin, has tumbled nearly 50% from the year’s high, after China cracked down on mining the currency and prominent advocate Elon Musk tempered his support.

HSBC’s stance also contrasts with rival banks such as Goldman Sachs, which Reuters in March reported had restarted its cryptocurrency trading desk.

“Given the volatility we are not into Bitcoin as an asset class, if our clients want to be there then of course they are, but we are not promoting it as an asset class within our wealth management business,” Quinn said.

“For similar reasons we’re not rushing into stablecoins,” he said, referring to the digital currencies that seek to avoid the volatility associated with typical cryptocurrencies by pegging their value to assets such as the U.S. dollar.

Bitcoin traded at $34,464 on Monday, down nearly 50% in just 40 days from its year high of $64,895 on April 14.

Pressure on the currency intensified after the billionaire Tesla Chief Executive and cryptocurrency backer Musk reversed his stance on Tesla accepting Bitcoin as payment.

‘Difficult questions’

China, which is central to HSBC’s growth strategy, said last Tuesday that it had banned financial institutions and payment companies from providing services related to cryptocurrency transactions.

Reuters reported in April that HSBC had banned customers in its online share trading platform from buying shares in bitcoin-backed MicroStrategy, saying in a message to clients that it would not facilitate the buying or exchange of products related to virtual currencies.

Quinn said his sceptical stance on cryptocurrencies partly arose from the difficulty of assessing the transparency of who owns them, as well as problems with their ready convertibility into fiat money.

“I view Bitcoin as more of an asset class than a payments vehicle, with very difficult questions about how to value it on the balance sheet of clients because it is so volatile,” he said.

“Then you get to stablecoins which do have some reserve backing behind them to address the stored value concerns, but it depends on who the sponsoring organisation is plus the structure and accessibility of the reserve.”

The soaring popularity of cryptocurrencies has posed a problem for mainstream banks in recent years, as they try to balance catering to clients’ interest with their own regulatory obligations to understand the source of their customers’ wealth.

HSBC’s stance against offering cryptocurrencies as an asset class marks it out against European rivals such as UBS, which is exploring ways to offering them as an investment product according to media reports earlier this month.



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Six trends that will shape banking, fintechs this year, BFSI News, ET BFSI

Banking & Finance

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The banking and finance world is moving at a fast pace, The last year was about the digitalisation of banking services among the customers. While that continues. other trends are emerging that promise to reshape the space this year.

Open banking

Open banking is a revolutionising technology that brings fintech and banking together and enables data exchange across institutions. Fintech markets in the UK and Europe have become crowded with AIS and PIS services providers and will reshape the traditional banking industry. However, there are still many traditional players in banking that are reluctant to build partnerships with fintech companies. The hurdle of Open Banking regulations has made it difficult for fintechs to get into banking and adopt the technology.

Hike in banking fees

Globally, banking and fintech firms are hiking their fees. Some banks have already announced that they are planning to charge customers for interbank payments or increase fees for payments and account opening. Fintech companies and digital banks also continue to review their commissions.

Decentralised finance

The surge Bitcoin value has put focus on other revolutionary trends of the crypto world including decentralised Finance (Defi). It is a pool of financial applications based on crypto and blockchain technology and used worldwide across banking, insurance, and other financial services. Yield Farming, a part of Defi, offers its users to maximise returns by locking up their crypto assets and, in turn, earning interest, crypto coins and tokens. Another trend is Non-Fungible Tokens (NFT), which are digital assets that span both tangible and intangible assets like music, art, virtual real estate and even virtual sneakers. NTF data are unique and non-exchangeable, thus it ensures that users can verify the authenticity of these digital assets. There is Polkadot or blockchain of blockchains that enables blockchain networks to operate together seamlessly. It is a multi-chain ecosystem that allows you to move any type of data across any type of blockchain.

Banking-as-a-Service platforms

Banking-as-a-Service (BaaS) industry has attracted many players and is set to become a US$7.2 trillion industry by 2030. There are signs of serious BaaS momentum, with leading banks such as BBVA and JPMorgan Chase ramping up significant investment into the unique API-type models. Goldman Sachs has announced its own new BaaS portal for developers.

Focus on cybersecurity

There has been a rise in fraudulent activities during the Covid pandemic. Cybercriminals have heavily exploited the disruptions and attacked financial institutions. With the recently introduced Open Banking, there are more concerns about security, privacy, and fraud in banking and fintech. Open banking has magnified the impact of breaches and cybersecurity incidents as well. To fight financial crime, banks need to implement new security measures and diversify the ways our financial data are stored. To protect data, more companies are storing their data on on-premise and cloud platforms and implementing machine learning to identify all kinds of fraudulent activities across their network and platforms.

Anti-money laundering fight

The sixth AML Directive was introduced in European law last December, which sets out that all EU members and their organisations must implement these regulations by June 2021. The 6th AMLD aims to close the gap of domestic legislation and harmonise the definition of anti-money laundering across EU member states. The new directive also focuses on predicate crime as the list of financial crimes has been expanded covering a wider range of activities not listed in the previous directives.



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Goldman offers new Bitcoin derivatives to Wall Street investors, BFSI News, ET BFSI

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By Matthew Leising

Goldman Sachs Group Inc. is wading deeper into the $1 trillion Bitcoin market, offering Wall Street investors a way to place big bets.

The investment bank has opened up trading with non-deliverable forwards, a derivative tied to Bitcoin’s price that pays out in cash. The firm then protects itself from the digital currency’s famous volatility by buying and selling Bitcoin futures in block trades on CME Group Inc., using Cumberland DRW as its trading partner. Goldman, which still isn’t active in the Bitcoin spot market, introduced the wagers to clients last month without an announcement.

“Institutional demand continues to grow significantly in this space, and being able to work with partners like Cumberland will help us expand our capabilities,” said Max Minton, Goldman’s Asia-Pacific head of digital assets. The new offering is “paving the way for us to evolve our nascent cash-settled crypto-currency capabilities.”

Goldman Sachs, which restarted a trading desk this year to help clients deal in publicly traded futures tied to Bitcoin, said in March it was also close to offering private wealth clients additional vehicles to bet on crypto prices. But the push into forwards dramatically increases its capacity to help big investors take positions. The partnership with Cumberland underscores the bank’s willingness to work with outside firms to help it do so, according to people familiar with the matter, speaking on the condition they not be identified.

For years after its creation in 2009, Bitcoin was shunned by Wall Street banks, with JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon once threatening to fire any of his traders caught buying and selling the digital currency. While Dimon later softened his tone, the banking world has long seen Bitcoin as a plaything for criminals, drug dealers and money launderers.

But client interest and Bitcoin’s astronomical price gains — reaching a high of almost $65,000 in April — have turned many bankers around, with Morgan Stanley making a Bitcoin trust product available to its customers and JPMorgan working on a similar offering.

“Goldman Sachs serves as a bellwether of how sophisticated, institutional investors approach shifts in the market,” said Justin Chow, global head of business development for Cumberland DRW. “We’ve seen rapid adoption and interest in crypto from more traditional financial firms this year, and Goldman’s entrance into the space is yet another sign of how it’s maturing.”

Banks are still wary of the regulatory challenges of holding Bitcoin outright. As derivatives settled with cash, the products Goldman Sachs is offering don’t require dealing with physical Bitcoin. In a similar way, the Morgan Stanley and JPMorgan trusts give customers access to vehicles tracking Bitcoin’s price while using a third party to buy and hold the underlying digital asset.

Goldman Sachs may next offer hedge fund clients exchange-traded notes based on Bitcoin or access to the Grayscale Bitcoin Trust, one of the people said.

“The crypto ecosystem is developing rapidly,” Chow said. “There is progress being made in offering ETFs, new custody providers coming online and optimism that regulatory efforts are coming into focus. It’s a great time to be in the space.”



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Goldman Sachs, BFSI News, ET BFSI

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Bandhan Bank reported a steady improvement in collection efficiency to 96% in March’21 while it has not seen any major surge in top-up loans. The improvement in collection efficiency for the microfinance sector is 95% in March versus 90% in January.

“Bandhan has declared its top-up loans for a cumulative amount of Rs 3,300 crore and, based on ALM maturity data and industry checks, we estimate it has extended government guaranteed loans of about Rs 2,000 crore over 1Q-3QFY21, which together would be roughly 14% of quarterly repayment over that same time frame as well as 11.4% of quarterly disbursements (over 1Q-3QFY21),” Goldman analysts wrote in a note. Based on company data, it appears the residual maturity of the loan portfolio (ex housing) has been consistent with the past, subject to some minor changes in the maturity buckets towards longer duration, it said.

Since 1QFY19, Bandhan has collected Rs 10,300 crore on a quarterly basis, and disbursed Rs 12,700 crore (in loans excluding mortgages) quarterly. On average, ECLGS and top-up loans accounted for 14 percent of quarterly repayments over the last three quarters and 11.4 percent of quarterly disbursements (over 1Q-3QFY21).

According to loan maturity data, approximately 30% of MFI loans are collected every three months, implying an average term of nine months. The length of loans has elongated slightly over the last three quarters, with loans of more than one year duration rising by 100 bps, owing to the use of ECLGS loans, and the RBI’s moratorium, which was in effect until August.

Industry peers and Assam

Strong and long vintage client relationships have been helping Bandhan’s collection efficiency compared to other banks/MFI players, which are 10-15 percentage point lower in terms of collection efficiency.

On the Assam loan book, Goldman Sachs said Bandhan witnessed nearly 400,000 additions in the number of new loan accounts — one of the highest among banks. Bandhan’s deposit business grew 16 percent /24 percent in 2Q/3QFY21, compared to 3 percent /4 percent for other major banks, and it now has a deposit market share of 1.3 percent in Assam. Within advances, Bandhan’s credit grew 6 percent /3 percent in 2Q/3QFY21, compared to 8 percent /6 percent for other major banks, and its market share was 9.4 percent as of December 2020.

The road ahead

Bandhan’s growth over 2Q-3QFY21 came primarily from urban areas, whereas incremental advances were driven by rural areas, which shows a distinction between the deposit and loans market composition for Bandhan Bank. Other banks’ ECLGS portfolios ranged from 5-23 percent of their loan books, whereas Bandhan’s is about 4 percent of total loans.

With surging Covid cases across India, Bandhan could potentially witness headwinds to its asset quality in the near term, Goldman Sachs estimates the Rs 74,00 crore of slippages over 4QFY21 -FY22, translating to 9% of FY21 total loans (v/s 7% of 3Q loans).

According to Goldman Sachs, Bandhan will be able to leverage its strong customer relationships and market share leadership to navigate through near-term headwinds with a manageable effect and deliver a 15 percent return on equity in FY21 25% RoE in FY22.

Goldman remains bullish on Bandhan Bank based on its improving liability franchise and healthy pricing power as evidenced by its favourable cost of deposit, and superior return ratios. Downside risks include any sharp increase in virus cases, slippages in strategy execution, or any disruption in home markets, especially MFI customer acquisition or liability buildouts.



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British digital bank Starling raises £50 million from Goldman Sachs, BFSI News, ET BFSI

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British digibank Starling received a £50 million (Rs 523.75 crore) investment from Investment Bank Goldman Sachs, the digital lender announced in a statement. The investment by Goldman Sachs, through its Goldman Sachs Growth Equity Fund, follows Starling raising £272 million (Rs 2849.07 crore) through its Series D funding round in March 2021. Cumulatively, through both raises, Starling said it had raised £322 million (Rs 3372.44 crore).

Founder and CEO of Starling Bank, Anne Boden, on the fund-raise said “Securing the support of another global financial heavyweight demonstrates the strength of demand from investors and represents yet another vote of confidence in Starling.”

“Goldman Sachs will bring valuable insight as we continue with the expansion of lending in the UK, as well as our European expansion and anticipated M&A,” added Boden.

James Hayward, Managing Director at Goldman Sachs added “Starling is one of the leading and most innovative digital banks in the UK, with an ambitious technology-first leadership team and addressing a deep market opportunity.”

The digital bank, founded in 2014, currently has over two million current accounts, which includes 3.5 lakh business account. Starling said its deposit base had also increased from £1 billion (Rs 1047.36 crore) to £6 billion (Rs 62841 crore) in less than a year and was on its path to declare its first full year in profit by the end of the next financial year.



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US Senate Banking chair presses Wall Street banks on Archegos ties, BFSI News, ET BFSI

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WASHINGTON: The Democratic chair of the US Senate Banking Committee has written to several large banks, including Credit Suisse and Japan’s Nomura, asking them for information on their relationship with New York-based Archegos Capital Management after the fund imploded last month.

Senator Sherrod Brown asked the bank’s chiefs to detail how their institutions came to do business with Archegos, a family office run by ex-Tiger Asia manager Bill Hwang. Archegos’ soured leveraged bets on media stocks have left the fund and banks that financed its trades nursing billions of dollars in losses.

In addition to Credit Suisse and Nomura, which lost $4.7 billion and $2 billion, respectively, Brown sent the letters to Goldman Sachs and Morgan Stanley which did not lose money on the trades, Reuters and other media outlets have reported.

Representatives of banks declined to comment or did not immediately respond to a request for comment.

The letters signal that the fallout from the Archegos meltdown is spreading in Washington, where policymakers are already mulling new rules on nonbanks and how traditional banks may be exposed to their risks.

“I am troubled, but not surprised, by the news reports that Archegos entered into risky derivatives transactions facilitated by major investment banks,” Brown wrote in the letters.

“The massive transactions, and losses, raise several questions regarding [the banks’] relationship with Archegos and the treatment of so-called ‘family offices,’ Mr. Hwang’s history, and the transactions.”

Brown pressed for details on how banks do business with “family offices,” lightly regulated funds that manage individuals’ and families’ personal fortunes, the services provided to them by the banks, and how the banks decide on the amount of credit to extend.

He also quizzed the lenders on whether bank supervisors or bank risk committees signed off on their dealings with Archegos, given Hwang had previously been punished by the US Securities and Exchange Commission for alleged insider trading.



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