Weekly Global News Wrap Up: Bank merger boom set to begin; New accounting rules for banks to worsen crises

JPMorgan records most profitable year and Credit Suisse ends cost-cutting era.

From CNBC: American banks are swimming in excess funds. They do not know what to do with this money so they are giving it away in the form of stock buybacks and dividends. At the same, time the irony is that the banks are just starting to report mediocre to disappointing second quarter earnings. So, on one hand, the resources necessary to support meaningful growth are being given away. On the other hand, the need to use this money to stimulate growth has never been greater. Initial earnings reports for the second quarter suggest that the banks are not obtaining the hoped for margin increases and it is tougher to locate new loans.

From Reuters: New accounting rules for banks risk exacerbating economic crises by making them reluctant to lend if the economy suddenly worsens, the European Union's financial stability watchdog said on Monday. The European Systemic Risk Board gave a broadly positive assessment of the new International Financial Reporting Standards (IFRS 9), which are intended to make banks safer and avoid a new financial meltdown. But it warned about the possible side effects of requiring banks to set aside money for expected credit losses (ECL), instead of after a loan has soured, if the economy suddenly contracts.

From Bloomberg: The optimism that fueled U.S. bank stocks after Donald Trump’s election is starting to fade. JPMorgan Chase & Co. toned down its outlook for loan growth and interest income in the second half, while Wells Fargo & Co. reported a drop in lending that surprised some analysts. Citigroup Inc. joined both in posting less trading revenue as clients pull back from betting amid congressional gridlock.

From Bloomberg: Credit Suisse Group AG signaled the era of cost-cutting and job dismissals may soon be over, telling employees that the bank will emphasize businesses that generate higher returns in its next strategic plan. Work on a blueprint for 2018 to 2020 began this month after the bank moved up a strategy meeting between executives and directors to June from the usual time of late August, according to an internal memo seen by Bloomberg and confirmed by the bank.