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Home » Daily Briefing » Daily briefing - 10 May 2017

Daily briefing - 10 May 2017

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Australian banks have certainly been riding a wave of late: with Commonwealth Bank, Westpac and National Australia Bank having all announced profits, shareholders would seem to have every reason to be happy. Periodic concerns that the sector is overly concentrated in the hands of the Big Four have failed to lead to any meaningful action from Canberra. But this week's Budget brought with it an action that is undeniably meaningful: a new bank levy. The measure is being brought in to shore up defences against systemic vulnerability, but, as is the way of these things, customers will find the cost being passed on to them one way or another. On reflection, they may consider that burden worth it: "No silver bullet is going to solve the problems of Australia's overpriced housing and over-leveraged banking system," observes David Fickling in an excellent analysis for Bloomberg, "but that's no reason to avoid incremental measures like this."

Time was when to talk of two Germanys was to invoke images of the Berlin Wall and the pair of very different states that lay on either side of it. Now it seems that two different worlds are emerging when it comes to German banking. On the one side are the old giants, the likes of Deutsche Bank and Commerzbank, mired in investments and loan books that are struggling to deliver in a persistently low interest rate environment: the latter, eg, has just seen its surprisingly bright quarterly results weighed down by troubled shipping loans. On the other hand, you have the likes of N26 (once called Number26) whose contemporary and consumer-friendly digital banking has drawn in 400,000 customers in 17 countries across the continent from Ireland to Estonia. Now, starting in Germany, N26 is partnering with deposit marketplace Raisin to offer a range of fixed term savings products. Aiming to offer retail banking services through third-party providers, the business model of N26 differs considerably from traditional banking: they are arguably more platform than bank. This deal will mean that they now offer card payments, money transfer and savings. They are yet to offer a credit product. In other German news, BaFin is welcoming Chinese bank investments, with the head of the agency interpreting the inflow as a mark of confidence in the country's financial sector. Chinese conglomerate HNA Group is now the largest stakeholder in Deutsche Bank.

With the demise of East and West Germany, we began the shift, still underway, from a bipolar to a multipolar world. Two key powers in the emerging dispensation are China and India, currently waking up to the investment opportunities that lie across their Himalayan divide. An intriguing piece from the Tech in Asia website describes a visit by a team of entrepreneurs to Alibaba's headquarters in Hangzhou. Seed investor Karthik Reddy spelled out the reality that is driving these meetings: "[Silicon] Valley is not interested in direct investments on a small scale. These guys [in China] think 'we can go and kill this, the Americans are too far away.' That realisation is coming now."

Recent stories from the United States show that a regulatory revolution is clearly stirring: Glass-Steagall may be revived, or at least some form of it, with at least three distinct versions doing the rounds in Washington in hopes of one day becoming law. A clash between the Treasury Department and SEC seems possible, if Treasury Secretary Steven Mnuchin intervenes in a "fight [over] a new accounting rule requiring [banks] to book losses on soured loans more quickly". Another high-profile measure is also up for serious debate, with "US financial regulators on Monday discussing the Volcker Rule governing banks' speculative trading, tackling one of Wall Street's biggest concerns and a sign President Donald Trump's administration is listening to banks' wishes about reforms resulting from the financial crisis". However Berkshire Hathaway vice chairman, Charlie Munger, says fellow Republicans are "bonkers" for doing away with bank regulations.

Africa: QR codes and Apple Pay: How Visa is pushing hard for digital to replace cash
Lawyers lurk at Spanish malls as suing banks goes mainstream
US: S&P warns of risks as bank lending for commercial real estate exceeds 2008 peak [WSJ paywall]

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