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Home » Daily Briefing » Daily Briefing - 12 January 2018

Daily Briefing - 12 January 2018


The US bank earnings season is set to start today, with JP Morgan, PNC Financial Services and Wells Fargo some of the major American financial institutions in the spotlight to report fourth-quarter earnings. Following the radical changes to the tax laws, the Wall Street Journal says that five of the biggest banks will declare a $31 billion hit for the final quarter of 2017. Although there remains a knot of red tape to untangle and a maze of interpretation to get through before the full impact of the corporate tax changes are understood, the banks are confident that it will benefit them in the long run. However, there are concerns that the new changes could skew earnings announcements with investors sure to study the results long and hard for clues of how the tax reforms could impact them.

The ever impending specter of Brexit was the driving force behind an almost 40 percent drop in new financial jobs available in the City of London last December compared to the same month a year prior — that's according to a Morgan McKinley report released this week. It is yet another indicator of how impacted the English capital could be come early 2019. More importantly, amidst all the speculation and number crunching about how many jobs will be lost due to big banks shifting some operations elsewhere, this is a cold hard statistic that no amount of double-talk or spin will soften. "Brexit clobbered the City's workforce in 2017. Anyone sticking it out into 2018 is in it for the long haul", said Hakan Enver, operations director at Morgan McKinley Financial Services.

It has been heralded for some time now, but PSD2's date of arrival is finally upon us. With just a few hours left until the revised directive comes kicking and screaming into the financial world, it will mark the beginning of increased competition in the banking industry, less expensive transactions and greater choice of options for consumers. In the UK, most of the banks will be ready — except for the Bank of Ireland — so we should start to see results from day one. Later this month, Lafferty News will have a Global Intelligence feature with Travelex's Colin Swain sharing his thoughts on what should be expected to change across the industry because of PSD2.

When it comes to payments, cash is still in vogue in Spain, particularly in rural areas — statistics from show. The report outlines plenty of indicators to back up its argument, including higher-than-average number of bank branches per 100,000 (67 in Spain compared with 38 in Western Europe). However, although cash will remain part of the culture for many years to come, a gradual shift has commenced. Between 2017 and 2022, cash use is expected to decline 1.7 percent. Lafferty Group senior researcher Patrick Houlihan comments: "It would be true to say that the use of cash is quite high in Spain — but this ignores the fact that relatively few markets are actively moving away from cash. In Europe, the Nordics and the UK lead the way down this path, but the use of cash remains popular in continental Europe, with Spain being no exception. Despite the best efforts of the authorities (viz the gradual withdrawal €500 notes by the ECB, and limits imposed on cash transactions by various European governments), consumers continue to use plastic primarily as a means to withdraw cash from the ATM. Short of a diktat from on high banning the use of cash, or a bout of hyperinflation, it is unlikely that this scenario will witness any great change in continental Europe over the medium-term, if not the long-term."

Ronan Lynch writes: On the press and cryptocurrencies: With the FT now running a daily headline on bitcoin, it's worth noting that mainstream coverage of cryptocurrencies is atrociously ill-informed, whether bitcoin gains traction or not. Recall that it's just over a month since the FT's Lex column dismissed bitcoin as a 'poxy currency', which qualifies as an outburst in the otherwise genteel world of financial journalism. In the US, it's a little better. The current managing editor of Coindesk (which is partly owned by Digital Currency Group, which also owns the giant Coinbase exchange) is Marc Hochstein, who spent the previous two decades as editor of American Banker. Lafferty News notes that many bitcoin stories presented as fact are riddled with inaccuracies and misunderstanding. Even if banks don't like bitcoin, they can't just wish it away. Yesterday's FT headline suggested that South Korea will close exchanges. It's true that the only leverage governments have over bitcoin is to regulate exchanges, and make sure they implement AML and KYC. This is already standard in most exchanges. New customers are limited to small transactions, and gain privileges through adding full information. In some countries, such as Australia, banks have moved unilaterally to close links between consumers and exchanges. Chinese miners are already setting up in third countries, ahead of a potential ban on mining operations. FT correspondent John Authers has admitted that one cannot simply write about cryptocurrencies as if they are tulips. It was a brave admission. Covering the price volatility makes little sense. Educating readers about the technology and political and cultural clashes in the bitcoin world is far more useful. Bitcoin community members are now calling out the big exchanges such as Coinbase, which are profiting from keeping the fees high and the exchanges clogged up — they are the equivalents of the correspondent banks that refuse to upgrade their technology because to do so would speed transactions and drop costs. We encourage our own readers to study Segwit and Lightning Network, before casting the new technology aside as a 'poxy currency.' Jamie Dimon this week expressed regret at calling bitcoin a fraud. We'll see how long it takes for the FT to start calling cryptocurrencies a marvel. A couple of days ago, we wrote that 2018 will see the convergence of messaging apps and cryptocurrencies. Here comes further confirmation of the trend via Bloomberg, as sources at Japanese messaging app Line said the company was exploring adding cryptocurrencies to its platform.

US: LG Wallet plans launch in 2018
UK: start-up lender Tandem targets 'massive' growth with Harrods Bank takeover

Quotes of the Week

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

Lafferty Bank Quality Benchmarking

Of the banks mentioned above, JP Morgan was given a three-star score in Lafferty's 2017 Quality Benchmarking report, while Wells Fargo and Bank of Ireland each received two stars: the maximum possible is five stars.

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