Tag: JPMorgan Chase

How green is the green finance promise of global banks?, BFSI News, ET BFSI

Banking & Finance

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Most global banks have signed Gfanz (the Glasgow Financial Alliance for Net Zero) at COP26 UN Climate Change Conference pledging to report annually on the carbon emissions linked to the projects they lend to.

Major signatories to the initiative, which aims to provide trillions of dollars in green finance, include Citi, Morgan Stanley and Bank of America. However, earlier efforts to promote green financing have not met with a serious response.

Principles of responsible banking

In 2019, the UN General Assembly exuberantly launched its principles of responsible banking (PRBs) where signatory banks agreed to work with their clients to encourage sustainable practices and to align their business strategy to the UN sustainable development goals and the Paris climate agreement.

Also, many of the biggest banks have not signed the PRBs, even though the principles have been the gold standard until now for committing to decarbonising lending.

Of the top ten banks (by market capitalisation), only Citi, Commercial Bank of China (ICBC), Bank of China and Agricultural Bank of China are signatories to PRBs. JPMorgan Chase, Bank of America, China Construction Bank, Wells Fargo, Morgan Stanley and China Merchants Bank are not on the list.

This is despite it being a limited commitment. Signatories have four years to comply with the principles, and signatories are not penalised or even named and shamed for failing to live up to the principles.

How banks fare

Among the major signatories to PRBs, Citi was the third-biggest fossil fuel lender in 2016-19 after the Paris Agreement and reached second place in 2020.

MUFG and ICBC, who are also signatories to the PRBs, both grew their fossil-fuel lending over the period. MUFG is also a Gfanz member, though neither ICBC nor any of the other Chinese banks are part of the new initiative.

Meanwhile, Wells Fargo and JP Morgan, which were not signatories to PRBs, reduced their total fossil fuels lending each year from 2018 to 2020, by 57% and 23% respectively.

Signatories to the PRBs are also supposed to carry out environmental-impact assessments and to measure the greenhouse gas emissions of projects. They are also supposed to ensure that loans go to projects that are carbon neutral. However, very little of this is happening on the ground at present.

While there is a need for a scheme that makes PRBs compulsory and binding, Gfanz does not tick the boxes. Under it, annual reporting requirements on carbon emissions are not mandatory either.

Experts say instead of forbidding lending to non-green projects now, loan books need to be treated as a portfolio of projects in different hues of green, with a defined trajectory towards greener – but it needs to be mandatory for signatories.



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US banks report big profit jumps amid improving economy, BFSI News, ET BFSI

Banking & Finance

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A trio of large US banks reported signficantly higher profits Thursday, boosted by a strengthening US economy that has diminished the need to set aside funds for loan defaults.

Bank of America‘s results were lifted by the release of $1.1 billion in reserves, while Citi’s got a $1.2 billion boost. Wells Fargo‘s quarter was helped by a $1.7 billion reduction in provisions.

“We reported strong results as the economy continued to improve and our businesses regained the organic customer growth momentum we saw before the pandemic,” said Bank of America Chief Executive Bryan Moynihan.

Large banks set aside billions of dollars early in 2020 amid fears that lockdowns to address Covid-19 would lead to a global depression.

But the results are the latest indication that consumers remain in relatively healthy shape, thanks in part to robust fiscal support programs from Washington and accommodative monetary policy that has boosted the housing and equity markets.

Wells Fargo Chief Executive Charlie Scharf pointed to the “low” number of charge-offs, a sum that creditors believe will not be paid.

Many economists believe the United States could be well positioned for growth, but warn that worsening inflation could weigh on activity and compel the Federal Reserve to lift interest rates more quickly than expected.

On Wednesday, JPMorgan Chase Chief Executive Jamie Dimon said investors should not put “too much focus” on inflation and supply chain problems, pointing to a strong IMF forecast for continued growth in 2021 and 2022.

“You can have good growth and some inflation,” Dimon said. “That’s okay.”

Citi Chief Financial Officer Mark Mason took a similar position Thursday, calling solid growth “the good news” in the economy.

“There are a number of those moving pieces that are out there,” Mason said in response to a question about supply chain problems. “Over time they start to normalize… and we’re optimistic that they will.”

Citi reported profits of $4.6 billion, up 48 percent from the year-ago level on a one percent drop in revenues to $17.2 billion.

Bank of America scored a 58 percent jump in profits to $7.7 billion on a 12 percent rise in revenues to $22.8 billion.

Wells Fargo reported profits of $5.1 billion, up 59 percent on a 2.5 percent drop in revenues to $18.8 billion.

Shares of Citi gained 0.2 percent to $70.37 while Bank of America rose 2.5 percent to $44.24 in morning trading. Wells Fargo dipped 0.2 percent to $45.96.

jmb/cs



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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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Indian banks do balancing act between green commitments and coal financing, BFSI News, ET BFSI

Banking & Finance

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Indian banks have to delicately balance between the renewable energy commitments and funding coal-fired power projects that are required for growth. On the other hand, global banks’ green financing is outpacing fossil fuel activity.

India may build new coal-fired power plants as they generate the cheapest power, according to a draft electricity policy in February, despite growing calls from environmentalists to deter the use of coal.

“While India is committed to add more capacity through non-fossil sources of generation, coal-based generation capacity may still be required to be added in the country as it continues to be the cheapest source of generation,” the NEP draft read.

This may put more pressure on local banks to fund such ventures, after having suffered a bout of bad loans on power plants in the last decade.

SBI faces pressure

State Bank of India faces pressure from its global investors like BlackRock but also needs to finance coal projects to electrify more homes

International investors are increasingly restricting support to companies involved in extracting or consuming coal, yet nearly 70% of India’s electricity comes from coal plants and demand for power is set to rise as the economy recovers from the blows of the pandemic.

BlackRock and Norway’s Storebrand ASA, both of which hold less than 1% in the bank, raised their objections over the past year. Amundi SA divested its holdings of the lender’s green bonds because of the bank’s ties to a controversial coal project in northern Australia. State Bank of India hasn’t decided whether to help finance the Carmichael mine for Adani Ports Ltd, whose main shareholder is Indian billionaire Gautam Adani, following mounting pressure from climate activists and investors, Bloomberg reported in April.

SBI has been boosting the share of loans to the clean energy sector and it approved three times more loans to solar projects in the nancial year that ended in March than to the overall thermal sector.

That’s because there was hardly any demand for new loans from fossil-fuel producers last year.

The lender’s loans to the power sector stood at Rs 1.86 lakh crore or 7.3% of the total at the end of March with Rs 31,920 crore of loans to renewable energy.

In India, the shift away from coal will take time. Millions of citizens remained without power months after Modi’s planned deadline to electrify every home passed two years ago. The environment ministry earlier this year further delayed anti-pollution guidelines for power plants that use the fuel.

Global banks surge

Funding for global energy is at a tipping point. Green bonds and loans from the global banking sector so far this year exceeded the value of fossil financing for the first time since the clinching of the Paris Agreement at the very end of 2015.

Since the clinching of the Paris Agreement, the global banking sector has underwritten more than $3.6 trillion of bonds and loans for the fossil-fuel industry. No bank has done more–or taken more in fees–than JPMorgan Chase in the past five-plus years.

The same constellation of banks has originated more than $1.3 trillion of green bonds and loans to support climate-friendly projects over the same period. No bank has done less than Wells Fargo, which has arranged the lowest proportion of green financing relative to fossil fuel among the world’s largest lenders.

But the biggest surprise of all is that high finance may have just shifted into a new era. Led by underwriting from firms including JPMorgan and Citigroup, green bond sales and loans this year are outpacing new fossil finance activity for the first time since the Paris Agreement was announced at the very end of 2015.

The transformation in the capital markets–if it lasts–indicates that the world’s largest banks may finally be getting behind the movement towards a low-carbon future. It also may be a sign that financial giants are seeing an advantage to green projects from a profit-and-loss standpoint.



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HSBC exiting US retail banking to focus on wealth management, BFSI News, ET BFSI

Banking & Finance

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British banking giant HSBC says it is closing its U.S. retail banking business in order to refocus its efforts on wealth management.

The bank will sell 80 East Coast branches to Citizens Bank and another 10 on the West Coast to Cathay Bank. All deposits and bank accounts will be transferred to those two banks, HSBC said. Another 20 to 25 branches will be converted into wealth management centers, and any remaining branches will be closed.

London-based HSBC is one of the world’s largest banks, but its focus is primarily in Hong Kong, where it was founded, and elsewhere in Asia, and in the UK and Europe.

HSBC announced the move late Wednesday after earlier this year saying was looking to sell or pursue other strategic options for its U.S. retail banking business. The business is small, making it hard to compete against big banks like JPMorgan Chase, which dominate on the East Coast.

“They are good businesses, but we lacked the scale to compete,” said HSBC’s CEO Noel Quinn said in a statement.

The bank expects the sale of its US retail banking business to close by early 2022.



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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

Personal Finance

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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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JPMorgan’s profits jump as economy, investment bank recovers, BFSI News, ET BFSI

Banking & Finance

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JPMorgan Chase & Co, the nation’s largest bank by assets, said its fourth quarter profits jumped by 42 per cent from a year earlier, as the firm’s investment banking division had a stellar quarter and its balance sheet improved despite the pandemic.

The New York-based bank said it earned a profit of USD 12.14 billion, or USD 3.79 per share, up from a profit of USD 8.52 billion, or USD 2.57 per share, in the same period a year ago. Excluding one-time items, the bank earned USD 3.07 a share, which is well above the USD 2.62 per share forecast analysts had for the bank.

The one-time item was JPMorgan “releasing” some of the funds it had set aside last year to cover potential loan losses caused by the coronavirus pandemic and subsequent recession. Banks had set aside tens of billions of dollars to cover potentially bad loans, and JPMorgan had been particularly aggressive in setting aside funds early in the pandemic.

Releasing those funds goes straight to a bank’s bottom line when it reports its results, but it’s not money that the bank generated from loans, customers or borrowers. It’s just funds that were effectively put into escrow and are no longer in escrow.

The USD 1.9 billion release is only a fraction of what JPMorgan set aside last year, and with the pandemic raging across the globe and particularly here in the U.S., it’s uncertain how much more the bank will release in the upcoming quarter.

“While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over USD 30 billion continue to reflect significant near-term economic uncertainty,” said JPMorgan CEO Jamie Dimon in a statement.

The driver of JPMorgan’s profits this quarter was the investment banking business. The corporate and investment bank posted a profit of USD 5.35 billion compared with USD 2.94 billion in the same period a year earlier. JPMorgan said it saw higher investment banking fees – money banks collect to advise companies on going public or buying other companies – as well as higher fees from its trading desks.



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