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Home » Daily Briefing » Daily Briefing - 04 August 2017

Daily Briefing - 04 August 2017

It's August and, with many away from their desks, a kind of truce customarily settles this month over the financial markets. However, a decade ago this week, troubling reports started to appear about strange rumblings in the banking sector. Bank of England governor Mervyn King was on the first day of his own break, recalls the Guardian in a look back at the credit crunch, when BNP Paribas announced it was freezing assets of hedge funds exposed to the American subprime mortgage market. "Alistair Darling, the chancellor of the exchequer, was also on holiday on 9 August, in Majorca. Lord Darling remembers spotting reports in the papers about the problems at BNP Paribas and regional German banks. 'I rang the Treasury,' Darling said. 'It was August. There was one man and a dog in charge of financial stability.'" Within weeks, crowds would be queueing outside branches of Northern Rock, looking for their money back: the first full-blown bank run in Britain for 140 years.

One of the first victims — and, let's be clear, also one of the main instigators — of that disaster, was RBS. Under chief executive Fred Goodwin, RBS swelled up and then burst in dramatic fashion, leading to the biggest corporate bailout in UK history — an event which has resonated down through the subsequent decade. Good news out of RBS remains rare, but this week the bank announced a half-year profit of £939 million. The bank last made a full-year profit back in 2007 and has been dealing with a series of crises ever since, including going into state ownership and paying enormous fines over the alleged misselling of mortgages-backed securities in the US and payment protection insurance in the UK. With a $5.5 billion settlement last month to the US Federal Housing Finance Agency over the securities issue and the expectation of a larger settlement with the Department of Justice, the firm hopes to bring this long and sorry chapter to a close. Now in expansive mode, RBS announced that it will boost its presence in Amsterdam, which has been on the end of some good announcements recently.

Australia's biggest lender has been charged by the country's financial crime agency for failing to monitor deposits of almost half a billion dollars into its ATM machines by drug gangs. Commonwealth Bank of Australia (CBA) said it will file a statement of defence. The allegations are that CBA broke money laundering and counter-terrorism financing laws in 50,000 cases, and failed to monitor customers even after warnings from law enforcement. "'This takes away a lot of consumer trust,' said Andrew Hughes, a lecturer in branding and marketing at Australian National University in Canberra. 'It hurts consumer confidence in the entire system. It's building a picture of a sector that needs more regulation, not less.'" Each case of money laundering attracts a maximum penalty of 18 million Australian dollars ($14.35m), meaning a potential overall fine of almost a trillion Australian dollars. "The bank's "conduct in this matter has exposed the Australian community to serious and ongoing financial crime," [crime agency] Austrac said in the court filing. 'Delays in this case have resulted in lost intelligence and evidence, including CCTV footage, further money laundering and lost proceeds of crime.'"

The impressive team at Kabbage have attracted a $250 million investment from Japan's Softbank. While banks continue to agonise over how to make money from the SME lending segment, Kabbage's use of data and automated loan processes have attracted thousands of lenders. In fact, Kabbage runs two businesses. In one, it lends money to small businesses based on a data set that it gathers from sources ranging from social media data and a business's financial software to information obtained by its partner, delivery company UPS. In the other, it offers white-label solutions to other businesses for lending. The Financial Times notes: "SoftBank has invested in several of the world's leading fintech companies, leading funding rounds worth more than $1bn at Paytm, the Indian digital payments and e-commerce company, and SoFi, the biggest online lender in the US."

When cities think about joining the 'smart city' movement, they usually turn to tech companies such as IBM or Alibaba. Macau is the latest city to announce a partnership. "'Alibaba Cloud's big data and deep learning technologies have been helping to build 'city brains' in China to help local governments effectively make management decisions,' said Simon Hu, senior vice president of Alibaba Group and president of Alibaba Cloud." According to the [Alibaba-owned] South China Morning Post, "the partnership with Macau marks Alibaba's first smart city foray in markets outside the mainland. The group has a proven track record in smart city development, including Hangzhou City Brain, an artificial intelligence-enabled transportation management system, which has already increased traffic speed by 11 per cent in Hangzhou's Xiaoshan district, where the project is being piloted."

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Quotes of the Week

A selection of quotes that have caught our eye of late at Lafferty News.

  • "Google in my experience knows that there are ambiguities, moral doubts, around some of what they do, and at least they try to think about it. Facebook just doesn't care. When you're in a room with them you can tell. They're' — he took a moment to find the right word — 'scuzzy'."
    Unnamed internet entrepreneur quoted by John Lanchester in his piece on Silicon Valley culture in the London Review of Books
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