First Impressions

Fintech Exchange 2015: A Chicago Story

Fintech is more than just a buzzword. Fintech is a movement – a global, top to bottom overhaul of financial systems, from consumer transactions at the grocery store to speed of light derivatives trades, to multi-billion dollar interbank payments. And on April 23, 2015, the center of fintech will be Chicago.

Barchart OnDemand, in association with FinTEX Chicago, will host Fintech Exchange 2015, a half day event featuring live presentations, a panel discussion and networking, all centered on the state of technology for financial markets and trading firms.
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Quote of the Day

“We’re beginning to see discussions that these capital charges are sufficiently large it’s causing those firms to think seriously about whether or not they should spin off some of their enterprises to reduce their systemic footprint. And frankly, that’s exactly what we want to see happen.”

Janet Yellen in the story, “The Biggest Banks Aren’t Ready to Shrink”.

Lead Stories

All 31 U.S. Banks Passed Fed Stress Test
Ian Katz – Bloomberg
The Federal Reserve said all 31 big banks subjected to a stress test have sufficient capital to absorb losses during a sharp and prolonged economic downturn.
It’s the first time since the central bank started stress tests in 2009 that no firm fell below any of the main capital thresholds. Goldman Sachs Group Inc. surpassed the 8 percent minimum for total risk-based capital by 0.1 percentage point, potentially restricting its room to return capital to shareholders.

BofA Sees Bond Traders Making Big Mistake in Underestimating Fed
Lisa Abramowicz – Bloomberg
Bank of America Corp. analyst Hans Mikkelsen says bond traders are too comfortable with the idea that borrowing costs will stay low for years to come.
He argues the market is underestimating the Federal Reserve’s desire for higher long-term borrowing costs — and its ability to make that happen.

Here’s How ECB QE Will Work
Lorcan Roche Kelly – Bloomberg
The European Central Bank has just published details of how its QE program will work.

For ethics in banking, rules aren’t enough
The Christian Science Monitor
Fed chief Janet Yellen worries about ‘shortcomings’ in values among bank workers, and the effects on the financial system. How can banks change from ‘mere compliance’ to ‘good compliance’?

The Biggest Banks Aren’t Ready to Shrink
by Peter Coy, Bloomberg
Jamie Dimon never quits. After Sandy Weill forced him out of Citigroup in 1999, Dimon staged a comeback that returned him to the pinnacle of banking as chief executive officer of JPMorgan Chase. After he was diagnosed with throat cancer last summer, he vowed to beat the disease with radiation and chemotherapy. Now he’s tussling with Janet Yellen’s Federal Reserve, which is ratcheting up the amount of capital the biggest banks must have on their balance sheets as a safety cushion for the next crash. The Fed’s tougher capital rules give the megabanks an incentive to shrink, but Dimon has no intention of doing so. CLSA Americas banking analyst Mike Mayo likens Dimon to the Black Knight in Monty Python and the Holy Grail, who keeps trying to fight while his arms and legs are being lopped off, saying, “It’s just a flesh wound.”

Bank Capital Rules: Would Smaller Banks Really Be Safer?
Bloomberg Business
New rules give big banks an incentive to shrink their balance sheets. But for most, massiveness remains part of the business plan

Taking stock in fixed income
Banking Technology
Fixed income markets have historically been a bastion of high-touch trading, with manual processes, large tickets and little standardisation. But as recent years have seen inventory slashed and balance sheets cut in face of rising regulatory pressure, finding liquidity has become more of a challenge. Project Neptune, an initiative between a group of 30 large banks and asset managers, looks set to change that.

Mark Cuban: We’re in a Tech Bubble—and It’s Worse Than 2000
by Dashiell Bennett, Bloomberg
Dallas Mavericks owner Mark Cuban knows a thing or two about tech booms. He made his fortune in the dot-com explosion of the late 1990s, founding and then selling for more than $5 billion. By doing so, he also avoided the great tech bust that followed the boom. As a result, he’s remained a billionaire, and gone to become a championship sports team owner, a TV star, and a powerful investor.

We Tried to Re-Create JPMorgan’s Mutual Fund Returns and Gave Up; The bank’s impressive mutual-fund-group performance figures come with little explanation
by Neil A Weinberg, Bloomberg
Last month at JPMorgan Chase’s 2015 investor day—where executives discuss results for the previous year in front of analysts and shareholders—the bank displayed impressive numbers for the performance of its mutual funds. Pie charts in the asset management unit’s presentation showed the percentage of money invested in funds that ranked in the top half of their categories: In fixed-income funds with 10-year records, the figure was 85 percent; for stock funds with 10-year records, it was 83 percent.

Citi’s Fix-It Man Guides Bank Through Stress Test; McQuade on drive to pass the Fed test: ‘This is our existential question’
By Christina Rexrode
Citigroup Inc. Chief Executive Michael Corbat last spring sent out invitations for a retirement party at an Italian restaurant in midtown Manhattan for Gene McQuade, a veteran banker with a reputation as a behind-the-scenes troubleshooter and peacemaker. Soon after, Citigroup failed the Federal Reserve’s annual stress test.

Bond-Trader TruMid Sells Stake Valuing Company at $75 Million
by Matthew Leising, Bloomberg
TruMid Financial LLC raised money from investors in a deal valuing the bond-trading startup at $75 million, according to President Ravi Singh.

Obama wants safeguards for retirement savers, but his plan is likely DOA
By Paul B. Farrell, MarketWatch
President Obama’s new fiduciary rule for retirement advice is DOA. Why? Not just because a 2004 GOP Senate killed the fiduciary rule Vanguard’s Jack Bogle has been pushing for over a half century. Not just because Wall Street banks will defeat any and every proposed fiduciary rule, just like they’ve been killing all bank reforms like Dodd-Frank since the 2008 crash. And not just because Janet Yellen’s Fed favors too-greedy-to-fail banks versus America’s 95 million Main Street investors.

Central Banks

Fed-Bashing, Transparency and Transcripts
By Justin Fox, Bloomberg View
The transcripts of the highly significant 2009 meetings of the monetary-policy-setting Federal Open Market Committee are out today, after a five-year delay, and generating lots of headlines.

Fed shifts regulatory power away from New York
The regulatory power of the Federal Reserve Bank of New York has shifted to a committee in Washington established in a previously undisclosed paper written in 2010, the Wall Street Journal reported on Thursday.
The change, which the newspaper said had been enacted slowly during the past five years, moves the center of banking oversight to Washington and the Large Institution Supervision Coordinating Committee, headed by Fed Governor Daniel Tarullo.

BOE’s Crisis Funding to Banks in Unprecedented Fraud Probe
by Suzi Ring, Bloomberg
The Bank of England’s efforts to aid lenders during the depths of the financial crisis are the target of an unprecedented criminal probe by the U.K. Serious Fraud Office.

Draghi Declares Victory for Bond-Buying Before It Even Starts
Simon Kennedy and Alessandro Speciale – Bloomberg
Mario Draghi is claiming victory for his quantitative-easing program before it even starts.
As the European Central Bank president set a start date of Monday for his 1.1 trillion euro ($1.2 trillion) bond-buying program, he said the stimulus will spur the euro area’s fastest economic growth since 2007 and return inflation to the ECB’s goal within three years.

The City avoids Brexit from trading in euros; ECB must stop trying to wrest financial activity away from London
FT View
The “L” in LCH.Clearnet stands for London, a city known to stand proudly outside the eurozone. Yet every day it clears about EUR250bn of euro-denominated instruments. Notional positions of EUR4tn are held at this one clearing house, a value somewhat higher than Germany’s gross domestic product.

The City beats the ECB: counterparty clearing houses can stay in London
IFA Magazine
The City of London will remain a home for central counterparty clearing houses after a Brussels court has overruled a previous decision by the European Central Bank (ECB).
The General Court of the European Union announced on Wednesday that it had annulled the Eurosystem Oversight Policy Framework published by the ECB that required central counterparties to be located in the Eurozone.

ECB to launch 1 trillion euro bond buying scheme on March 9
The European Central Bank said it will start its new government bond-buying program on March 9, hoping that pumping new cash into the sagging euro zone economy will boost growth and lift inflation.


Denmark’s Euro Love Affair a Lesson to Investors in Commitment; The nation’s 33-year-old peg won’t be shaken easily
by Peter Levring, Bloomberg
After rebuffing two invitations to join the euro, and amid lawmaker’s reluctance to call another vote, Danes seemed not to think too highly of Europe’s common currency.

Former Fed chiefs join call to keep currency rules out of trade pacts
A group of prominent U.S. economists, including former Federal Reserve chiefs, Alan Greenspan and Ben Bernanke, wrote to congressional leaders Thursday to support key trade legislation but warn against including currency rules in trade deals.
The economists, all former chairs of the President’s Council of Economic Advisers, said legislation to streamline the passage of trade deals through Congress “encourages our trade partners to put their best offers on the table.”

European tourists unfazed by euro slump
A strong US dollar is a nuisance for most Europeans traveling abroad, but that hasn’t stopped them from booking pricier flights and hotels. Germans in particular remain unperturbed by a drop in purchasing power abroad.

Indexes & Index Products

Growth Indexes Get More Dynamic in 2015; Russell Indexes
Both U.S. large and small cap stocks, as reflected by the Russell 1000 Index and Russell 2000 Index, respectively, have been driven by growth-oriented stocks in the last 12 months as of March 2. And yet while defensive-oriented growth stocks had the strongest performance in the last 12 months, 2015 to date as of March 2 has seen a notable shift in the growth area toward more dynamic-oriented stocks and sectors.

FTSE adds nine Indian firms as large-caps in Asia-Pacific ex-Japan index
Stock market index provider FTSE Group has added Bosch and raised the shares of eight other Indian companies, including Yes Bank, to large-caps from mid-cap earlier in its Asia Pacific ex-Japan index.

Bond Traders Stymied by Gridlock Turn to Swaps: Credit Markets
Bloomberg Business
Trading in total-return swaps linked to bond indexes has surged to $4 billion a week, up from $2.4 billion a year ago, according to data compiled by BNP Paribas SA. JPMorgan Chase & Co. forecasts trading of the derivatives, which are meant to make it easier to place bullish and bearish bets in credit markets, will increase by as much as threefold this year.

Why Apple doesn’t grow on the Dow Jones tree
It may be by far the most valuable American company but Apple Inc still can’t get into at least one exclusive club – the 30-member Dow Jones Industrial Average.

Russell Indexes Demotes Morocco to Frontier Status
ETF Trends
Russell Indexes, one of the largest providers of indexes for use by exchange traded funds, said it has demoted Morocco to frontier market status from the emerging markets classification.


Gold market open to wide-ranging OTC trade reform: LBMA
Clara Denina – Reuters
The London Bullion Market Association (LBMA) believes the gold industry is ready for wholesale reform, including a tailor-made mechanism to report daily turnover and potential clearing following 2014’s shake-up of benchmarks.
The transparency of financial markets has been a focus of global regulators after evidence of price manipulation in lending rates between banks with the LIBOR scandal in 2012.

Currency Turmoil Makes Precious Metals Ownership A Necessity
Seeking Alpha
The first two months of 2015 have seen turmoil in the currency markets extend from Russia and Ukraine to the heart of Europe.
“Central Banks Now Open 24/7 Fighting Currency Wars and Deflation,” blared a February 12th Bloomberg headline. Against this backdrop, precious metals have been on the rise in terms of all currencies except the Swiss franc and the U.S dollar.

Gold Goes Back to Boring With Volatility at 4-Month Low
Debarati Roy and Laura Clarke – Bloomberg
Gold is once again leaving investors bored.
The metal’s 30-day historical volatility dropped to the lowest since early November on Thursday, according to data compiled by Bloomberg. Even Mario Draghi’s plan for more bond buying that sent the euro to an 11-year low against the dollar wasn’t enough to spur some movement for gold, with futures trading little changed for most of the day in New York.

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