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Citi makes predictions on digital disruption; MasterCard tries to anticipate political risk


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Citi makes predictions on digital disruption; MasterCard tries to anticipate political risk

Techinvestments cost global banks $200 billion last year, according to Celent'sestimates, and almost three-fourths of it went toward maintaining old systems.Citi GPS, in a paper titled "Howfintech is forcing banking to a tipping point," also predicts thatbranch modernization will drive headcount down 40%-45% through 2025, compared topeak pre-crisis levels. So far, the decline has only been about 11%-13%.Robo-advisory, meanwhile, will likely augment — not replace — the face-to-faceadvice preferred by higher net worth clients. And blockchain could reduce therole of custody banks, but also lower the liquidity buffers required ofinvestment banks.

BloombergView's Matt Levine touched on blockchainas well, saying it "may well be a technological improvement, but justkeeping track of loans in an Excel spreadsheet would be a technological improvement over 20-day settlement. The blockchain'sreal force comes in the fact that it is a sociologicalimprovement [in that] it has managed to make people care about back-endtechnology."

Over atMasterCard Inc. unitMasterCard International: a patent application for a system that predictsgeopolitical risk. Credit card data would show, for example, if more peopleare buying medical supplies, survival gear or bus tickets out of town, The Wall Street Journal reports.

In the asset management scene, institutionalinvestors globally withdrew$19.75 billion from hedge funds in January, the Journal reports, citing eVestment.

Investment banks aren't doing so well either. Analystspolled by the Financial Times expectfirst-quarter tradingrevenue to drop by up to 48% for Goldman Sachs Group Inc. and by up to 56% for . The FT further notes there hasn't been theusual M&A advisory and IPO underwriting work to compensate for the loss. Ofcourse, that doesn't mean there hasn't been any. J.P. Morgan Securities andMorgan Stanley & Co., for example, are among the of 's $100 millionIPO. Sources for Reuters say Piper Jaffray Cos. is handlingrestaurant chain Giordano's potential sale, and JPMorgan is fieldingM&A inquiries into Medivation. Morgan Stanley and are advisingSeadrill on loanrestructuring, say sources for Bloomberg News, while its creditors haveengaged the services of LazardLtd.

On the regulatory front, the big news is thatMetLife Inc.beat the FSOC infederal court. The FT cautionsagainst over-optimism, noting banks "have lesschance of escaping" the SIFI designation, while the Journal remarks that, until JudgeRosemary Collyer's full opinion is disclosed, it remains unclear "just howbig a loss MetLife is for regulators."The discovery may come soon, however. General Electric, today, filed its requestto the FSOC for rescission of General Electric Capital Corp.'s designation as anonbank SIFI.

Banks will betrying their luck elsewhere — namely in London next month when they meet withregulators regarding a just-finalized Basel rule calling for a bigger buffer against market risk.This chance to give additional feedbackhas them preparing more granular trade data, as well as estimates on economicimpact, say sources for Bloomberg.

LynnPatterson of Canada's central bank argued that low oil prices are seeing thecountry progress toward "a newbalance of economic growth," but that job cuts in the commodity sectorare "the first and most visible step" in an adjustment that may takemore than two years. On the other hand, the data also shows a greaterwillingness among Canadians to transfer to the regions with more jobs, and, longerterm, "the significant reductions in oil investment since late 2014 couldleave future increases in global demand unmet, putting upward pressure onprices and drawing investment back into the sector."

And, closer tohome, the FHFA's Office of Inspector General criticized the agency for notinvolving Fannie Mae'sand Freddie Mac'sboards in"matters requiring attention."

In other parts of the world

Standard& Poor's Ratings Services cut its 2016 growth projections for the eurozoneeconomy to 1.5% from 1.8% in November 2015, and now expects growth in theregion to reach 1.6% next year. The rating agency attributed its action to anosedive in financial conditions at the start of the year, saying the eurozoneeconomy was "flying on one engine." S&P also stressed thatcentral bank actions are having a diminishing impact on inflation and growthprospects, partly due to lack of support from governments and due to somefactors that are beyond their reach.

The day ahead

Earlymorning futures indicators pointed to a lower opening for the U.S. market.

In Asia, theHang Seng dropped 0.13% to 20,776.70, while the Nikkei 225 was down 0.71% to16,758.67.

In Europe, asof midday, the FTSE 100 was down 0.41% to 6,177.46, and the Euronext 100 fell1.27% to 865.63.

On the macro front

Thejobless claims report, the Chicago PMI, the EIA natural gas report, the Fedbalance sheet and the money supply report are due out today.

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