Posts Tagged ‘Goldman Sachs’

Citi sees ‘gathering market storm’ and warns against ‘complacency’

July 30, 2018

Bank questions equity market’s rebound from spring lows
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By Camilla Hodgson

Analysts at Citigroup have warned that the recent stocks rally may be unjustified in the face of fundamentally unchanged geopolitical risks, and that investors should avoid becoming complacent.

In a note on Monday, Citigroup’s Mark Schofield said that while global stock markets have rallied in the months since March, the risks that prompted investor concerns earlier in the year had not abated and that tightening in monetary policy by central banks may knock markets off course.

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“It may be that easing trade tensions and China’s policy response are comforting investors, but the move has the hallmarks of herd instincts at work,” said Mr Schofield.

The global economy appeared to be “riding the tailwinds of easy policy and fiscal stimulus, but these drivers are failing. Meanwhile storm clouds are gathering and risks look biased to the downside,” he said.

Stocks in the US and Europe tumbled at the end of March from highs earlier in the year, following growing trade tension between the US and China, and fears of a possible economic slowdown in China. A rise in bond yields had also sparked a decline in equities prices earlier in 2018.

Since then, the global trade skirmish has only cooled-down modestly. US President Donald Trump and European Commission chief Jean-Claude Juncker said last week they had made progress in defusing tensions and averting an all-out trade war. However, analysts have warned that the situation remains fraught.

Since falling to a low for the year at the beginning of April, US benchmark the S&P 500 has jumped nearly 10 per cent and is close to its January all-time high, while Europe’s Stoxx 600 index has risen nearly 8 per cent over the same period.

But recent changes “have not really justified the latest moves”, said Mr Schofield.

Also on Monday, a note from Goldman Sachs highlighted growing concerns from clients that gains in the S&P 500 were increasingly being driven by a small pool of stocks. “Narrow bull markets eventually led to large drawdowns” when investors lose confidence, although US market breadth “has not yet narrowed enough to signal investor danger,” the note said.

Mr Schofield said the “herding behaviour” that he reckons is present in the market can be “very persistent and can feed on itself.”

He said that a catalyst for a change in risk sentiment could come from global central banks, particularly the European Central Bank, Bank of England and Bank of Japan.

The ECB held its policy steady last week, but plans to end its bond buying later this year and is expected to raise rates next year. Meanwhile, the BoJ has become a subject of intense focus after reports last week that it was considering tweaks to its monetary policy sparked turbulence in Japan’s bond market.

Mr Schofield said the BoE’s policies are “least likely to trigger a global reaction, by virtue of the smaller size of the economy and markets, and the fact that the entire outlook is mired in the ongoing Brexit situation, with little prospect of any clear development any time soon.” However, “current market pricing looks very dovish to us, with scope for upside (yield) surprises possible.”

Taking all this together, Mr Schofield said, there is “plenty of reason not to get too complacent over the recent rally in risk assets.”

https://www.ft.com/content/d10aba90-93ce-11e8-b747-fb1e803ee64e

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China’s Luck on Yuan Devaluation Risks Running Out on Trump Ire

July 22, 2018

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For more than a month, China seemed to be enjoying the advantage of exchange-rate depreciation without the global backlash and panicky capital outflows that accompanied the bout of yuan weakening in 2015. Then Donald Trump took issue.

The U.S. president’s charges that China is “manipulating” a currency that’s been “dropping like a rock” came at the end of a six-week slide in the yuan that took it to its lowest level in more than a year against the dollar. The remarks, in a tweet and an interview with CNBC, suggested to market participants that the U.S.-China trade war is now broadening to include currencies, putting fresh scrutiny on Chinese management of the yuan.

After overseeing a slide in the yuan of almost 5 percent since mid-June, the question for Chinese officials now is whether to turn to other policy measures to support growth in the face of headwinds to exports. JPMorgan Chase & Co. analysts, for one, see the dangers of a repeat of the 2015 turmoil as too great for China to keep going with the current approach.

“So far China has responded to the trade war by easing monetary policy and letting the yuan depreciate,” JPMorgan economists Jahangir Aziz and Zhu Haibin wrote in a note Friday. “Other measures, particularly fiscal, need to be brought into play soon to relieve the burden.”

Trump’s criticism aside, China watchers have highlighted how the yuan’s depreciation this time around is better understood by investors as a reflection of economic fundamentals, rather than the 2015-style shock.

“A few years ago we didn’t have a story to justify the yuan weakening,” said Iris Pang, greater China economist at ING Bank in Hong Kong. “It was the PBOC that triggered the sudden yuan devaluation, without any notice or without any hints,” she said of the People’s Bank of China in 2015.

While the yuan has had effects on markets — for example, futures contracts on the S&P 500 Index, Asian equities and oil all dropped for a time Friday after China cut the yuan’s daily reference rate the most in more than two years — the impact has been limited.

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The S&P 500, for example, remains on track for a fourth consecutive month of gains, compared with its 6.3 percent decline of August 2015. While Chinese stocks have entered a bear market, with the CSI 300 Index down about 20 percent from its January peak, that’s occurred alongside softening growth and worries over rising corporate defaults.

Market Driven?

As China’s officials determine whether to respond to Trump’s yuan manipulation charge, economists say there are clear arguments for a cheaper Chinese currency, justifying the current weakness.

“The currency should be depreciating from a broad macro perspective — you have the Fed hiking and PBOC easing, so at some point it will be reflected in the FX market,” Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong, told Bloomberg Television. “This is still in line with the broader PBOC policy of introducing more volatility and letting the market play itself out.”

Bloomberg Economics estimates that the yuan is around 6.6 percent overvalued, based on economic fundamentals. Fielding Chen and Tom Orlik wrote in their analysis Friday that “there’s a sense that the decline is in line with Beijing’s wishes and — if they want — under their control.”

Even so, China has reasons to avoid sustained declines in the yuan. Earlier this decade it burned through about $1 trillion of reserves to stem an exodus of capital. And this June saw $10.7 billion in cross-border outflows, Morgan Stanley estimates.

Chinese authorities have taken steps to ensure the slide doesn’t get unwieldy. After a 2 percent drop over the space of a week, PBOC Governor Yi Gang and other senior officials in early July underscored that China favored a stable currency. Again on Friday, after the morning tumble in the yuan began unsettling Asian investors, there were signs of action to stem the decline.

“Chasing USD/CNY higher is probably the wrong trade,” Goldman Sachs Group Inc. strategists including Zach Pandl in New York wrote in a note to clients Friday, referring to the dollar-yuan currency ticker. The yuan “will be more stable, as the U.S. could interpret further depreciation as a form of retaliation,” they said, sticking with a three-month forecast of 6.7 per dollar. “For now.” The currency closed at 6.7864 in Shanghai on Friday.

https://www.bloomberg.com/news/articles/2018-07-22/china-s-luck-on-yuan-devaluation-risks-running-out-on-trump-ire

Asia Stocks Decline Amid Mixed China Economic Data

July 16, 2018

Asian stocks fell as mixed economic data in China failed to allay concern about the world’s second largest economy’s ability to the withstand the impact of the trade dispute. Crude slid and the yen traded near the weakest level since January.

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Equities from Sydney to Shanghai dropped, while those in Hong Kong recouped losses during the morning. Volumes were down in most markets with Japan shut for a public holiday. The yen held its recent losses after posting its biggest weekly slide in 10 months. Oil fell below $71 a barrel amid speculation the Trump administration is considering tapping into emergency crude supplies. U.S. equity futures ticker higher after Friday’s gains pushed the S&P 500 back above 2,800, with a pause in trade tensions outweighing a mixed start to the earnings season.

Trade tensions have eased somewhat as officials in Beijing appeared to moderate their response to President Donald Trump’s tariff threats amid a slowing economy, falling stock market and weakening currency. Data Monday showed China’s economic expansion slowed down slightly from the previous quarter, with industrial output in June missing estimates. Later this week investors expect Federal Reserve Chairman Jerome Powell to lay the groundwork for further tightening.

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These are some key events coming up this week:

  • Earnings season continues with reports due from companies including: Bank of America, BlackRock, Goldman Sachs, Morgan Stanley, American Express, Netflix, Microsoft, Taiwan Semiconductor Manufacturing, Unilever, Johnson & Johnson and IBM.
  • U.S. President Donald Trump and Russian President Vladimir Putin hold their first summit together.
  • Fed’s Powell delivers the semi-annual Monetary Policy Report to the Senate Banking Committee and answers lawmakers’ questions.

And here are the main market moves:

Stocks

  • Hang Seng slid 0.2 percent as of 12:22 p.m. in Hong Kong, having slipped as much as 0.7 percent earlier. Hang Seng China Enterprises Index down 0.7 percent.
  • Shanghai Composite declined 0.5 percent.
  • South Korea’s Kospi index slipped 0.2 percent.
  • Australia’s S&P/ASX 200 Index fell 0.5 percent.
  • Futures on the S&P 500 Index were up 0.1 percent. The underlying gauge rose 0.1 percent Friday.

Currencies

  • The Japanese yen slid 0.1 percent to 112.48 per dollar.
  • The offshore yuan rose 0.1 percent to 6.7083 per dollar.
  • The euro was little changed at $1.1684.
  • The British pound rose 0.1 percent to $1.3240.
  • The kiwi dollar climbed 0.2 percent to 67.67 U.S. cents.

Bonds

  • The yield on 10-year Treasuries dipped two basis points to 2.83 percent Friday.
  • Australian 10-year government bond yields were steady at 2.63 percent.

Commodities

  • West Texas Intermediate crude declined 0.6 percent to $70.60 a barrel.
  • Gold fell 0.1 percent to $1,243.64 an ounce.

— With assistance by Richard Richtmyer

https://www.bloomberg.com/news/articles/2018-07-15/asia-stocks-signal-mixed-start-ahead-of-china-data-markets-wrap

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Former Goldman Banker Is in Plea Talks Over Malaysian 1MDB Scandal

July 10, 2018

Discussions between Tim Leissner, U.S. prosecutors bring probe closer to Wall Street firm

Former Goldman Sachs banker Tim Leissner attending a movie screening in March
Former Goldman Sachs banker Tim Leissner attending a movie screening in March PHOTO: RODIN ECKENROTH/GETTY IMAGES

A former Goldman Sachs Group Inc. banker is in talks with U.S. prosecutors to potentially plead guilty to criminal charges stemming from an alleged scheme to steal billions of dollars from a Malaysian state investment fund, people familiar with the matter said.

The talks bring the fast-moving investigation closer to Goldman, which raised billions for the Malaysian fund, 1Malaysia Development Bhd, and come after the arrest of Malaysia’s former prime minister, who founded the fund and lost his re-election bid earlier this year.

The onetime Goldman partner and Southeast Asia chairman, Tim Leissner, who hasn’t been charged, is seeking an agreement with prosecutors that would involve his cooperation with the government’s criminal-fraud probe into 1MDB and Goldman, the people said.

One potential charge Mr. Leissner could ultimately plead guilty to would be a violation of the U.S. Foreign Corrupt Practices Act, which bans the use of bribes to foreign officials to get or keep business, according to some of the people familiar with the matter.

Prosecutors would have to corroborate any information he might provide and determine its usefulness to the overall investigation before agreeing to a plea, legal experts say.

Investigators have said 1MDB was used by former Prime Minister Najib Razak as a political slush fund and by associates of his to buy real estate, art and other luxuries from London to Beverly Hills, Calif. The U.S. Justice Department alleges in civil lawsuits that $4.5 billion was taken from the fund.

​Mr. Leissner, a German national married to an American fashion designer, was Goldman’s top banker on the fund. In that role, he forged a close relationship with Jho Low, a Malaysian businessman who prosecutors allege is the mastermind of the purported fraud, which would be one of the biggest in history. ​

Prosecutors from the U.S. Attorney’s Office in Brooklyn also are investigating whether Goldman, which earned nearly $600 million from its role in arranging a series of bond sales for 1MDB, violated any laws, some of the people said. Billions of dollars raised through the bond offerings were almost immediately routed to bank accounts connected to figures in the probe, including Messrs. Low and Najib, investigators have said.

Mr. Najib was charged in court with three counts of criminal breach of trust. He pleaded not guilty to all the charges and has denied any wrongdoing at 1MDB. The former prime minister had previously been cleared by the country’s previous attorney general.

In addition to Mr. Najib’s arrest last week, Malaysia also has issued a warrant for the arrest of Mr. Low, who is believed to be in China.

Mr. Low hasn’t been charged and has denied any wrongdoing. Mr. Low and his lawyers declined to comment. The U.S. and Malaysia are both investigating Mr. Low, The Wall Street Journal has reported, but it is unclear if he will be charged or which country’s authorities might do so.

“Since we suspended Mr. Leissner, we have discovered that certain activities he undertook were deliberately hidden from the firm, which we have brought to the attention of the relevant authorities,” a Goldman spokesman said. A lawyer for Mr. Leissner declined to comment on the bank’s statement. A spokesman for the U.S. Attorney’s Office in Brooklyn and a spokeswoman for the Justice Department declined to comment.

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Tim Leissner in happier times

Starting in Malaysia, a scandal involving the 1MDB fund set up by Prime Minister Najib Razak now involves at least 10 countries, including the U.S. This animation shows how money allegedly misappropriated from 1MDB moved through global wealth centers before being used to buy real estate, art, and other assets around the world, including in New York and Beverly Hills. Illustration: Oliver Osborne for The Wall Street Journal.

U.S. investigators have sought to determine whether Goldman had reason to suspect that money it helped 1MDB raise was misused and, if so, whether the bank was obligated to report any concerns to authorities, the Journal has reported. The Federal Reserve, Securities and Exchange Commission and New York state’s Department of Financial Services also are examining some of the bank’s actions, as are Singapore authorities, the Journal has reported.

Goldman’s big profits on the bond offerings, and their timing—one closed mere weeks before Malaysia’s 2013 presidential election—raised eyebrows throughout Wall Street. Some of the money raised in the offerings, investigators have said, was used to help fund Mr. Najib’s campaign, the Journal has reported.

Goldman has said it did nothing wrong and had no way of knowing there might be fraud surrounding 1MDB. The bank has said its main role was raising money it thought would be used for the stated purposes. Goldman had repeatedly denied Mr. Low’s request to open personal accounts at the firm.

Still, no one flagged the 1MDB transactions to regulators, the Journal has reported. “We have found no evidence showing any involvement by Jho Low in the 1MDB bond transactions,” the firm has said previously.

Mr. Leissner met Mr. Low in 2009. That year, Goldman became an adviser to the oil wealth fund. The fund evolved into 1MDB when the prime minister gave it the broader goal of spurring economic development.

Goldman advised 1MDB on two 2012 bond sales, raising $3.5 billion. A third offering, also underwritten by Goldman, raised an additional $3 billion in 2013.

Mr. Leissner was suspended from Goldman in early 2016 and later quit the firm after it discovered he had written an unauthorized letter to a Luxembourg bank vouching for Mr. Low. The letter said Goldman had done due diligence on Mr. Low and found no issues.

Singapore’s Monetary Authority cited the letter in barring Mr. Leissner from doing business in the city-state for a decade. His attorney, Marc S. Harris, said in late 2016: “Throughout his professional life, Mr. Leissner has conducted himself with integrity, dedication and with high ethical standards and we believe the various ongoing investigations will support these facts.”

The Financial Industry Regulatory Authority, a U.S. industry body, banned Mr. Leissner from the securities industry last fall after the former banker didn’t respond to requests for documents and other information stemming from his departure from Goldman. Mr. Leissner’s attorney had declined to comment on the ban.

Write to Justin Baer at justin.baer@wsj.com, Bradley Hope at bradley.hope@wsj.com and Nicole Hong at nicole.hong@wsj.com

Appeared in the July 10, 2018, print edition as ‘Ex-Goldman Banker In Talks on 1MDB Plea.’

https://www.wsj.com/articles/former-goldman-banker-in-plea-talks-over-malaysian-1mdb-scandal-1531165030?mod=hp_lead_pos7

BlackRock and Citi plan Paris expansion in Macron coup

July 9, 2018

US fund manager chooses French capital as new base for alternative investment services

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Martin Arnold and Owen Walker in London and David Keohane in Paris

French president Emmanuel Macron’s charm offensive to win business from the City of London is starting to pay off as BlackRock and Citigroup join other Wall Street groups in expanding their Paris operations ahead of Brexit.

Mr Macron has rolled out the red carpet for financial services companies, promising to cut taxes and red tape while talking up the economic prospects of the country with a “France is back” pitch.

In a victory for the French president, BlackRock has chosen Paris over London for its new base to provide alternative investment services across Europe and Asia, as the world’s biggest money manager aims to dominate markets outside its US home.

The decision by BlackRock follows months of courting by the French establishment, including a meeting between Mr Macron and Larry Fink, chief executive of the $6.3tn asset manager, at the Elysée Palace.

The French leader has also persuaded Citi to expand in the country. The US bank recently poached senior investment bankers from UBS in France as part of plans to add dozens of extra staff in Paris.

“The effect of Macron has lightened up the country — before his election it was pretty bleak,” said Luigi de Vecchi, chairman of corporate and investment banking in continental Europe at Citi, who is moving from Milan to Paris. “As you talk to French CEOs, they are all pumped up with tons of cash and aggressive plans.”

BlackRock, which already has nearly 50 staff in Paris and manages around €30bn for French clients, applied to the French markets regulator, the Autorité des Marchés Financiers, two weeks ago for a licence to set up an alternative investment fund management company in the country. This would enable it to sell products such as hedge funds, real estate and commodities funds to the global market from its Paris office.

The company hopes to receive authorisation in September. Last month it hired Henri Chabadel as chief investment officer for France, Belgium and Luxembourg, based in Paris.

London will remain BlackRock’s main European office and the company does not plan to relocate staff from the UK to Paris. Any hires will be new roles. BlackRock declined to comment.

With nine months to go before the UK leaves the EU, financiers are frustrated at the lack of progress in negotiations on the terms of Britain’s departure. Many are starting to rejig their European operations to cope with any disruption. But Brexit was not the main motivation for the French expansion of BlackRock or Citi.

“The question is whether in the long term banks will see the number of large corporate clients reduced in the UK,” said Mr de Vecchi, pointing out that Brexit had made British companies vulnerable to takeover by weakening the pound. “Whereas in France you are seeing the creation of European champions.”

Arnaud de Bresson of the business lobby group Paris Europlace said financial companies were ramping up plans to open offices in France. “The first teams are arriving,” he added. “It’s true for asset management companies — including coming from London — but also for international banks.”

Citigroup, which employs about 160 people in Paris, said in an internal memo that it had hired Gregoire Haemmerle and Pierre Drevillon from UBS to become head of its French corporate and investment banking unit and head of French M&A, respectively.

Citi plans to add 150 jobs in its sales and trading operation in Frankfurt and as many as 100 more, mostly in Paris, but also spread across Milan, Madrid, Dublin and Amsterdam.

In the immediate aftermath of the Brexit vote, most Wall Street banks opted for Frankfurt or Dublin to create their alternative EU hubs. But recently some have been unveiling plans to bulk up in Paris.

Lloyd Blankfein, chief executive of Goldman Sachs, said in a tweet last year that he was “struck by the positive energy here in Paris” before the bank announced last month that France was a priority in its plans to double its workforce in continental Europe.

Bank of America said recently it was relocating three senior investment bankers from London to Paris. JPMorgan Chase said last week it expected to “migrate or add a few hundred roles” to the EU ahead of Brexit — many of which are set to be in Paris. Morgan Stanley also plans to add about 80 jobs in Paris after Brexit. HSBC, which already has a big French operation, has said it is likely to move up to 1,000 jobs to Paris.

In addition, inter-dealer broker TP ICAP is in talks with French regulators about setting up a base in Paris in the first quarter of 2019.

https://www.ft.com/content/164ee490-8147-11e8-8e67-1e1a0846c475

Brexit Killing London as Financial Hub? Not Just Yet

June 29, 2018

A feared flood of bankers out of the U.K. has turned out to be a trickle

The London skyline with the skyscraper known as ‘the Gherkin' in the foreground and the Canary Wharf financial district in the distance.
The London skyline with the skyscraper known as ‘the Gherkin’ in the foreground and the Canary Wharf financial district in the distance.PHOTO: CHRIS RADBURN/ZUMA PRESS

Brexit was meant to be a crippling blow to London’s position as the financial capital of Europe. With eight months to go before the U.K. is set to leave the European Union, the British capital’s role remains mostly undiminished, and no single other European city is close to claiming its crown.

One key measure: what was expected to be a flood of bankers out of London to continental Europe has turned out to be a trickle. And the ones that are leaving are divided widely among rival cities such as Frankfurt, Paris, Dublin, Milan and Amsterdam.

The result isn’t the immediate challenge to London that was anticipated. The amount of international lending channeled through U.K.-based banks increased between the June 2016 Brexit vote and the end of 2017, according to the Bank for International Settlements. British exports of financial services also continued to rise, according to Coriolis Technologies, which tracks this data.

“I would have thought that there would have been a worse outcome by now,” Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein said earlier this year.

Exiting the EU could, depending on the outcome of negotiations between the U.K. and Brussels, leave bankers in London unable to sell products seamlessly across the trading bloc’s 28 nations. But a transition agreement should keep the U.K.’s access to the EU until the end of 2020. So after making detailed fallback plans, banks are sitting on their hands.

“The number of bank staff moves out of London so far has been much lower than expected by many,” says Oliver Wagner, managing director of the Association of Foreign Banks in Germany, where Frankfurt was supposed to be a major beneficiary of Brexit.

A forecast of the number of British finance jobs set to disappear by March 2019, when the U.K. leaves the EU, was recently reduced to 5,000 from 10,000 by the Bank of England. That’s about 1% of the people who work in financial services in London.

Brexit SliverThe number of U.K. based banking jobs going to the EU is currently smallSource: the companies*After plans’ completion
Employees remainingin U.K.*Jobs going to Europe

Global financial centers such as London, New York and Hong Kong, maintain their pre-eminence based on overwhelming concentrations of capital and skilled finance workers. Brexit presents an opportunity for other European capitals to pry some of that expertise away. So far, even with banks claiming they are prepared to weather the severest form of Brexit, London has only lost its standing in dribs and drabs.

This summer around a dozen of Goldman Sachs’ French fixed income sales team—who are based in London—will head to Paris to deal with clients from the French capital. Bank of America Corp. on Tuesday kicked off its Brexit reshuffle announcing that three senior bankers would move to Paris next year, where the bank is renovating an art deco post office to house its staff.

JP Morgan Chase & Co. had warned that a quarter of the 16,000 people it employs Britain could see their jobs go because of Brexit. Currently it plans to move between 300 and 400 jobs.

Given the uncertainty, banks aim to move as few jobs as possible and hope they can leave it at that. That means relocating a handful of bigwig executives, trying to send London-based European salespeople back to home countries and hiring support staff locally in Europe. The thinking is that a lot of operations staff can, for the moment, stay put in the U.K.

Much about the U.K.’s future relationship with the EU remains unknown. And for some, the banks are moving too slowly. The European Banking Authority has warned that banks aren’t ready if the Brexit talks collapsed and the U.K. found itself suddenly frozen out of the EU. That could throw up problems ranging from the invalidation of some contracts to increasing the cost of clearing trades. “Financial stability should not be put at risk because financial institutions are trying to avoid costs,” the EBA said.

European regulators are also turning the screws.

The EU is considering forcing big banks based in the U.K. to set up subsidiaries in the bloc. In the long term that might encourage international lenders to move headquarters out of London and into the EU for cost reasons. London may become the outpost of a bank’s European hub.

Investment banks are hoping that the European Central Bank allows them to continue to flip trades out of their EU hubs back into London, which would require less transfer of capital from the city to the continent. But ECB officials have been adamant they want subsidiaries in the EU that have enough capital and management in place to withstand shocks independently.

Banks also hope to outsource back-office work to their British subsidiaries. This is much cheaper than creating a big new stand-alone banking operation in the EU. ECB officials have said they are against the idea but bankers are betting on concessions in the short term.

“Much of this is still open for question,” says John Liver, a partner at Ernst & Young.

Write to Max Colchester at max.colchester@wsj.com and Patricia Kowsmann at patricia.kowsmann@wsj.com

https://www.wsj.com/articles/brexit-killing-london-as-financial-hub-not-just-yet-1530277668

Blankfein closing in on deal to take over Apple’s credit business

May 11, 2018

 The chief executive’s Goldman Sachs is closing in on a deal to take over Apple’s credit card business, according to a report on Thursday.

The chief executive’s Goldman Sachs is closing in on a deal to take over Apple’s credit card business, according to a report on Thursday.

The new brand of card, a joint venture between the bank and the tech titan, according to the report, will carry the Apple Pay brand and further cement Goldman’s foray into the world of consumer finance.

The new card will also push Apple into the mobile payments business and allow the Cupertino, Calif., company to tap into a steadier stream of fee income.

Terms of the potential deal are still being hashed out, but Apple is likely to start offering the cards next year, according to the report in The Wall Street Journal.

The potential deal pushes Goldman into a space that’s been occupied by Barclays since about 2005, when the British bank started offering Apple customers no-interest financing on certain purchases.

Goldman’s possible partnership isn’t expected to end Barclays’ relationship with the iPhone maker. The British bank plans to continue offering some financing for Apple products, according to a person familiar with the plans.

Representatives for the companies didn’t return calls for comment.

Wall Street was moderately positive on the news, sending Goldman shares up $1.71, to $243.44. Apple shares gained $2.68, to $190.04 — leaving the company with an all-time-high market cap of $934 billion.

Goldman has been expanding into consumer banking since 2016, when it first offered consumer banking services under its Marcus brand.

The bank, which has struggled to make profits in its bond and commodity trading units in recent years, has been looking to expand its deposit base — and has started offering interest rates for savings that dwarf most rivals.

The partnership with Apple is an aggressive move to expand that, analysts said.

“In the case of Goldman specifically, it appears to be the latest in a series of step-out strategies to expand its consumer lending activities while utilizing its growing deposit base and in-house technology resources,” Nathan Flanders, global head of non-bank financial institutions at Fitch Ratings, said in a statement.

“This isn’t just about short-term profits for Goldman Sachs,” Matt Schulz, senior analyst at CreditCards.com, said in a statement. “It’s about tying their brand with Apple’s hugely powerful brand …”

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JPMorgan applies to re-enter China securities market

May 11, 2018

US bank looks for controlling stake in JV after exiting market in 2016

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Don Weinland in Hong Kong

JPMorgan Chase has applied to re-enter China’s securities market with a controlling stake in a joint venture after exiting two years ago.

The US bank has submitted an application to China’s securities regulator to acquire a 51 per cent stake in a Chinese securities company, according to a statement on the website of the China Securities Regulatory Commission.

The news comes after JPMorgan chief executive Jamie Dimon visited Beijing this week. The bank has not named the domestic Chinese company with which it intends to partner.

Image result for Jamie Dimon, in China, photos

China issued rules in late April that allowed foreign banks to apply to take controlling stakes in securities companies in the country, although some details on the process were still unclear.

JPMorgan is the first US bank to apply to take a controlling stake in a Chinese securities business. Goldman Sachs and Morgan Stanley, which have existing JVs, have both expressed interest in increasing their stakes. The CSRC said last week that UBS and Nomura applied to take majority stakes in securities businesses.

In 2016, JPMorgan exited its joint venture with First Capital Securities, marking one of few pullbacks by a foreign bank from the Chinese securities market. At the time Mr Dimon said the bank remained committed to the Chinese market and would re-enter with the right domestic partner.

The opening of China’s securities market to foreign banks has been a long and slow process. Morgan Stanley entered the first joint venture investment bank in China with the 1995 establishment of CICC. In 2004 Goldman Sachs launched a China JV in which the global bank controlled the operation for the first time despite holding a minority stake. UBS struck a similar deal in 2006 when it bailed out Beijing Securities.

Several other foreign banks have entered similar arrangements but until now have been limited to a 49 per cent stake.

Only HSBC has been granted permission to take a 51 per cent stake in a national-level securities joint venture. It opened that Shenzhen-based business last year, taking advantage of special rules that apply only to Hong Kong-funded institutions.

The businesses of foreign securities JVs remain small compared with their purely domestic rivals that dominate the market.

The Asia Securities Industry & Financial Markets Association, a trade body that represents banks and asset managers, recently expressed concerns over rules proposed in March requiring companies buying into securities groups to have net asset value of at least Rmb100bn ($15.9bn).

https://www.ft.com/content/1835404e-54c2-11e8-b3ee-41e0209208ec

Rudy Giuliani and Elon Musk Walk Into a Bear Trap

May 4, 2018

It’s almost enough to make you appreciate decent spin.

 Updated on 
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Photographer: Drew Angerer/Getty Images

Congratulations – you’re reading Bloomberg Opinion Today, a new newsletter from the new Bloomberg Opinion. Key words here are “new” and “opinions,” which you’ll get every afternoon in your inbox, sprinkled with charts, analysis and other garnish. Former subscribers to Share the View, Fly Charts and the Daily Prophet will hopefully feel at home. New subscribers are welcome and can sign up here.

Stocks had kind of a wild day. Jay-Z is in hot water with the SEC. And Bloomberg has a snazzy new website, complete with a new paywall.

Words Fail

Talking is hard, even if you do it for a living.

Rudy Giuliani, recently hired to lawyer for President Donald Trump, appeared on Sean Hannity’s Old-Timey Propaganda Hour last night and promptly talked his client into a fresh morass of legal and political jeopardy.

On the plus side, he generated billable hours for his fellow lawyers, who crafted CYAtweets for Trump this morning. But even those tweets raise troubling legal questions, warns Noah Feldman. He digs into the theories they and Giuliani espouse and finds “All this makes no sense, in law or in economic logic.”

Hours before Giuliani’s bombshell, Tesla Inc. CEO Elon Musk did some freestyling of his own. On a conference call about his company’s quarterly results, he grew weary of Wall Street analysts’ “boring, bonehead” questions about such trivia as “cash flow” and “why can’t you make enough Teslas.” He cut them off, at one point suggesting you shouldn’t even buy Tesla stock if you worry about such foolishness. This promptly drove the electric-car maker into a fresh morass of financial jeopardy; its stock price dropped and its borrowing costs jumped.

Both men had one job – use words to make life easier for their client/company – and both failed. It’s almost enough to make you appreciate good spin.

Giuliani’s words were arguably more impactful, at best dinging the president’s already shaky credibility.

As for Tesla, it’s burning cash and will need to ask investors for moreLiam Denning argues. Musk made that harder, or at least more expensive. Musk, though, seems increasingly convinced that all those people calling him the real-world Tony Stark are onto something. You almost can’t blame him; as Liam  notes in a follow-up, Tesla calls typically are useless celebrations of Musk’s genius.

But to paraphrase another guy who used words to spin his way through stuff like invading Iraq: No matter how big you are, even in the Donald Trump era, it still helps to be careful what you say.

The Bloomberg View

The Fed stood pat yesterday but needs to watch out for signs of nascent inflation, Bloomberg’s editors say.

Money Quote: “Next month, as well as delivering the expected rise in interest rates, the Fed should acknowledge more plainly that conditions are changing.”

How Do You Do, Fellow Kids?

Kanye West’s fashion sense helped make Adidas relevant. But now that West seems to be losing his common sense, if not his fashion sense (I mean, have you seen his dad style?), Adidas doesn’t need him to be cool anymore, Andrea Felsted writes.

Love Vs. Money at Facebook

Facebook’s new focus on people and connections and butterflies and whatnot soundsgreat, until you realize it has nothing to do with how Facebook actually, you know, makes money, points out Shira Ovide. (From the Bloomberg Technology newsletter; sign up here.)

The Squid and the Blockchain

Goldman Sachs is getting into Bitcoin trading. It’s the kind of bonkers thing that could make banking at Goldman fun again, writes former employee Matt Levine. (Matt has his own newsletter, Money Stuffsign up here.)

Cracks in Credit 

Credit markets seem mostly fine and certainly are nowhere near as bananas as in the financial crisis. But there are early signs of trouble brewing, points out Robert Burgess.

Chart Attack

Blue Apron Holdings Inc. had a good quarter, but is it sustainableSarah Halzack is just asking.

Express Scripts Holding Co. is trying to play the good guy on drug prices. Max Nisen isn’t buying it.

Speed Round

Kicker

Meet the guy who used an algorithm to make nearly $1 billion betting on horses.

Note: This newsletter is a work in progress, so please send hate mail, suggestions and kicker ideas to me at mgongloff1@bloomberg.net.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mark Gongloff at mgongloff1@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net

https://www.bloomberg.com/view/articles/2018-05-03/rudy-giuliani-and-elon-musk-walk-into-a-bear-trap-jgqzkl37

Amazon Surges After Stunning Wall Street With Its Near-Perfect Quarter

April 27, 2018

Image may contain: 1 person, suit and closeup

Amazon.com Inc. shares jumped to a record high Friday, up as much as 7.9 percent, with analysts applauding the company’s biggest expansion in profit margins in about two years.

Jefferies sees every major segment of the business contributing to the better-than-expected results, as well as big tailwinds coming behind the Amazon Web Services unit, Prime and the emerging advertising business. Analysts across the board were impressed with the financial results and Morgan Stanley sees Amazon’s e-commerce behavior modification and profit levers in the “on” position after announcing a $20 price increase for U.S. Prime subscribers.

The shares climbed 6.6 percent to $1,617.77 at 9:37 a.m. in New York. The previous intraday high was $1,617.54 on March 13.

Amazon's Fulfillment Center BFI3. - Amazon - DuPont, WA

 

Goldman Sachs, Heath Terry

“We are in the sweet spot between Amazon investment cycles where new fulfillment/data centers are driving accelerating revenue growth while incremental capacity utilization is driving margin expansion.”

“Higher level, we still remain in the early stages of the shift of compute to the cloud and the transition of traditional retail online and, in our opinion, the market is underestimating the long-term financial benefit of both to Amazon.”

Maintains buy rating and raises price target to $2,000 from $1,825

Jefferies, Brent Thill

“Amazon delivered impressive 1Q results — total revenue 2 percent above consensus and the best operating margin we’ve seen since 2Q16 – with 2Q guidance also ahead of expectations.”

“We see strong tailwinds across AWS, Prime and the emerging ad business helping fuel sustained outperformance for this runaway freight train.”

Maintains buy, raises price target to $1,950 from $1,850

Loup Ventures, Gene Munster

Amazon’s results were highlighted by profitability that was twice the Street estimates.

“Recall that from time-to-time Amazon will flex its gross margins to remind investors of the model’s leverage potential. Going forward we expect margins to dip lower as the company continues its aggressive investment pace into fulfillment, lower AWS pricing and content.”

“The company also announced a 25 percent increase in the price of a Prime membership. This should yield about $2 billion per year in incremental revenue that will most likely be reinvested in the business, and occasionally allow the company to flex its profit margin muscle once again”

Piper Jaffray, Michael Olson

“Early margin expansion surprise points to a large efficiency year.”

“Management announced an increase in U.S. Prime subscription cost from $99 to $119 effective June 16, which we believe will drive $1.2 billion of incremental revenue.”

“We continue to believe Amazon has substantial ‘hidden’ margin created by its heavy investments in un-monetized efforts.”

Maintains overweight, raises price target to $1,850 from $1,650

Morgan Stanley, Brian Nowak

“Amazon’s results showcased its strong top-line momentum as 1Q revenue was roughly in line with us and the top-end of 2Q revenue guide was ~2 percent ($1 billion) higher than us.”

“Amazon seems to be executing at an even higher level than they expect to as 1Q GAAP operating profit beat the high end of its guidance by $927 million, the biggest beat in over 7 years.”

Maintains overweight, raises price target to $1,700 from $1,550

Bank of America, Justin Post

“While certain 1Q revenues and margins clearly benefited from some accounting changes, the quarter was a nice reminder of the inherent margin power of the business.”

“Other revenue (largely advertising) grew 139 percent y/y in 1Q, above our 96 percent estimate, and is a key positive given the likely high margin contribution.”

Reiterates buy, raise price target to $1,840 from $1,650

Susquehanna, Shyam Patil

“We continue to remain positive on Amazon as we see the company as a long-term secular grower with leadership positions in three large growth markets — e-commerce, cloud and advertising… and expect numbers to move higher over time.”

“Catalysts include intra-quarter e-commerce data, company specific events (such as the AWS summits), AWS product announcements, pricing decisions and quarterly results.”

Maintains positive, raises price target to $2,000 from $1,850

Loop Capital, Anthony Chukumba

“We are quite frankly flabbergasted” by Amazon’s results.

“Particularly impressed by Amazon’s performance given the fact 1Q is typically a seasonally weak profitability quarter for the company.”

Reiterate buy and raises price target to $1,800 from $1,700

Baird, Colin Sebastian

“The significant acceleration in other revenues suggests Amazon’s advertising ambitions continue to ramp quickly, and is now large enough to drive upside in Amazon’s margin profile.”

North American margin expansion was “a key positive, while international losses moderated despite significant investments in India.”

“Amazon’s best-in-class large-cap growth story remains unchanged.”

Maintains outperform, raises price target to $1,800 from $1,600

GBH Insights, Daniel Ives

“North America retail strength across the channel was the clear star of the show for Amazon as we believe the company is on pace to comprise roughly 50 percent of U.S. e-commerce spending by 2019.”

“While near-term there is a major focus on significant investments around fulfillment, Prime, Echo/Alexa, AWS and integrating the Whole Foods acquisition into the fold, which could depress margins over the next few quarters, we believe this is ‘near term pain for long-term gain.’”

“Overall, this was a Picasso-like quarter for Amazon with no blemishes.”

https://www.bloomberg.com/news/articles/2018-04-27/amazon-surges-as-wall-street-is-stunned-by-near-perfect-quarter