Happy Sunday,
One-third of global economy could enter recession this year. The U.S. job market remains robust. Fed remains committed to fighting inflation. FTC seeks to ban noncompete clauses. Banking regulators issue joint guidance on crypto. Celsius “Earn” users face bankruptcy setback. Coinbase reaches $100Mn settlement with NYDFS. Wyre winds down. Goldman’s consumer head steps down. JPMorgan and TikTok.
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One-Third of World Economy Could Enter Recession This Year
The U.S. economy may score a “soft landing” and avoid recession this year. But IMF economists expect a third of the world economy to be in recession in 2023, including half of the E.U. Global growth is now expected to be a paltry 2.7% in 2023, down from 3.2% last year.
The job market remains strong, despite continued inflation and interest rate hikes. ADP is reporting private payroll growth of 235,000 in December, which is well above the 153,000 jobs estimated and the 127,000 added in November. The report also showed pay up 7.3% vs. last year.
Image: FT
Meanwhile, minutes from December’s meeting show the Fed wants more “evidence” that inflation is easing. The central bank reiterated its commitment to doing what is necessary to tackle price increases, saying the slower 50 bps rate of rate hikes shouldn’t be interpreted as a weakening of its resolve. Estimates indicate unemployment could rise by at least 1% as the Fed continues its hiking cycle.
FTC Seeks to Ban Noncompete Clauses
Last week, the FTC announced a plan to ban noncompete clauses. The practice of including such clauses has become increasingly common and impacts nearly one in five workers. The FTC argues use of noncompetes constitutes an “exploitative” practice that reduces competition, suppresses worker wages, and restraints the formation of new businesses.
The commission voted 3-1 to advance the proposal last month, which will now be subject to a 60-day public comment period.
Banking Regulators Issue Joint Guidance on Crypto
The Fed, FDIC, and OCC issued a brief joint statement warning banks to expect extra scrutiny of any crypto-related exposure. Notably, the statement specified that issuing or holding digital assets on open, public or decentralized networks is “highly likely to be inconsistent with safe and sound banking practices.” Regulators also noted significant “safety and soundness” concerns about banks lending to or providing other service to crypto companies, noting risks that include potential impacts on deposit flows.
The guidance is timely, given revelations last week that Silvergate saw customers pull $8.1Bn in deposits during the fourth quarter, forcing the crypto-focused bank to liquidate assets at a substantial loss.
Celsius “Earn” Users Gave Up Control, Judge Says
In a decision that’s likely to reverberate in other crypto bankruptcies, a judge overseeing Celsius’ proceedings ruled that customers who had invested their crypto in Celsius’ “Earn” product had turned over control of their assets to the company. As a result, those assets will be considered part of the company’s bankruptcy estate. Users who had crypto in the “Earn” product will be considered unsecured creditors, meaning they are likely to take a substantial haircut on any claims they have. Celsius had around $4.2Bn worth of various cryptocurrencies held in “Earn” accounts as of July, 2022.
Coinbase Reaches $100Mn Settlement with NYDFS
Coinbase has agreed to pay a $50Mn penalty and invest $50Mn in its compliance systems in a consent order revealed last week with the NYDFS. The consent order arose from what New York regulators call Coinbase’s “significant failures” to “build and maintain a functional compliance program that could keep pace with its growth.”
NYDFS says Coinbase’s KYC and customer due diligence procedures amounted to a “check the box” exercise that failed to meet regulatory obligations. The order also cited significant backlogs in conducting enhanced due diligence screenings, when required, and in remediating transaction monitoring alerts. Coinbase also failed to file suspicious activity reports in a timely manner.
Wyre Winding Down
Crypto winter seems set to claim another company. Wyre, a fiat-crypto “onramp,” is shutting down, the company told employees according to reporting in Axios. At one point, the company, once valued at as much as $1.5Bn, was supposed to be acquired by one-click checkout startup Bolt. But that deal was called off in September. It looks like, unable to find another buyer or fresh capital, the company is being forced to close up shop.
Goldman’s Consumer Head Steps Down
Last October, Goldman signaled its reduced consumer ambitions with a reorg that saw its Marcus consumer bank shuffled into a new business unit with wealth and asset management. Then, late last year, news broke that Goldman Sachs intended to stop originating personal loans through Marcus altogether.
Now, the head of Goldman’s consumer business, Swati Bhatia, is stepping down from her role at the firm. Goldman has said it plans to focus its retail-related efforts on distribution through its wealth management channels, through partnerships, like the ones it has with Apple and GM, and through the merchant network it acquired as part of its purchase of GreenSky.
JPMorgan Chase’s Newest Client… TikTok?
I’m guessing Jamie Dimon isn’t on TikTok, but that isn’t stopping JPMorgan Chase from working with TikTok-parent ByteDance. The U.S.’ largest bank has been quietly working with China-based ByteDance to build financial tools for its apps, including the hugely popular TikTok.
While most people think of the platform as the place for dance trends and viral reaction videos, billions of dollars move on the platform each year. Users can tip their favorite creators with “coins” and “digital gifts” (which can be converted to real money). In 2022, users spent some $3.4Bn on the platform. ByteDance is working with JPMorgan on initiatives to streamline and expand these capabilities, among other potential projects.
Still, the partnership is likely to raise eyebrows. TikTok and parent ByteDance have come under renewed scrutiny, amidst ongoing tensions with China. The federal and several state governments have warned government employees from using the app on government-issued devices, with some considering outright bans.
In the News
CFPB, New York AG Sue Auto Lender Credit Acceptance for Deceiving Borrowers (American Banker, 1/4/2023) Regulators allege Credit Acceptance deceived thousands of borrowers by failing to disclose and include finance charges in calculating the cost of a car loan.
CFPB Targets Large Banks with New Repeat Offender Unit (American Banker, 1/3/2023) The latest in Chopra’s plan to crackdown on large corporate recidivists.
Bankman-Fried Pleads Not Guilty, Faces Trial in October (Bloomberg, 1/3/2023) SBF appeared in the U.S. District Court in New York, and the judge set an October 2nd trial date.
Bernstein Says Crypto Exchange Binance Not Likely to Fail (CoinDesk, 1/3/2023) Bernstein’s research report says that Binance is solvent, liquid and stable.
Fintech Stocks Did Worse Than Fin or Tech in 2022 (Wall Street Journal, 1/3/2023) Investors have focused more on profitability as rising rates hit growth stocks.
The Opportunity is Right Now’: Banks Recruit Amid Big Tech Layoffs (American Banker, 12/30/2022) Banks could capitalize on hiring needs for technologists to help with data, AI and cloud migration.
The Downsides of Using ‘Buy Now, Pay Later’ (New York Times, 12/29/2022) Regulators worry about the level of regulation of BNPL and about potential loan “stacking”.
Rising Debt and Disappearing Savings Calls for Fintech’s Next Wave (American Banker, 1/2/2023) Increasing loan volumes were a main driver of bank-fintech partnerships over past few years.
Businesses Can Survive Looming Recession by Modernizing B2B Payments Process (PYMNTS, 1/3/2023) 25% of B2B payments are still made by check.
Shopify Targets Big Retail’s eCommerce Ambitions as Revenue Slows (PYMNTS, 1/3/2023) Shopify launched a new tech stack service (Commerce Components by Shopify) for larger enterprises with GMVs of over $500Mn annually.
Blockchain Fintech GammaRey Signs $320M Merger Agreement (CoinTelegraph, 1/3/2023) GoLogiq will acquire the blockchain fintech focused on consumer digital wallets and developer software.
SoFi Teams up with Mastercard with ‘Pay in 4’ (Fintech Nexus, 1/4/2023) SoFi is the first bank to begin “Pay in 4” within the Mastercard Installments program.
Lighter Fare
Green Comet Will Pass by Earth for 1st Time in 50,000 Years (Fox 8, 1/4/2023) Mark your calendars for February 2nd.