Americas: California, Über Alles!

Author: John Crabb | Published: 8 Jul 2019
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Uber followed Lyft to the public market in May

In the quarter where a survey of banks overwhelmingly decided that London is no longer the hub of the financial world, regulatory updates from the Americas are more pertinent than ever.

Starting this issue with some deal news, April and May were particularly busy in the US equity space. Stealing the headlines was ride-hailing company Uber, which followed rival Lyft to the market with its initial public offering (IPO) on the New York Stock Exchange. Like Lyft, things did not start well for Uber, and IPO investors found themselves out of pocket as soon as secondary trading began.

At the time of writing things do appear to be picking up for Uber, and sources suggest that the IPO market remains an attractive route for companies. Other recently-listed companies such as Beyond Meat, Pinterest and Zoom all had favourable debuts. Approval was also granted for a new national securities exchange in Silicon Valley, the Long-Term Stock Exchange (LTSE), which will be dominated by the technology sector. This may still be a bumper year for equity markets.

Elsewhere in the deal space, Raytheon and United Technologies have announced a mega-merger in the defence and aerospace sector. If completed, the $74 billion deal will put the company second only to Boeing in the US, potentially reshaping the entire industry.

In the oil sector, the race to buy Anadarko saw Occidental out bid Chevron with a $38 billion bid; the latter refusing to match its offer and enter into a bidding war. Anadarko's chief executive is set to receive a $98 million payout once the deal closes.

Meanwhile the Securities and Exchange Commission (SEC) finally introduced its long-awaited best interest standard: its replacement for the Department of Labor's (DoL) dead fiduciary standard rule. The rule relaxes regulatory oversight for brokers and large financial services companies, and takes the onus off consumer protection. The release of the rule leaves many things uncertain, with numerous states still pushing their own agenda and the DoL recently announcing that it intends to publish an updated rule of its own before the year is out.

Lots of activity too at the Commodity Futures Trading Commission (CFTC). The announcement that current chairman Christopher Giancarlo is to end his term on July 15 and be replaced by Heath Tarbert is paramount. Tarbert, who was confirmed by the Senate in early June, is currently acting undersecretary for international affairs at the Treasury Department.

Shortly before this, Giancarlo announced that the CFTC would soon be voting on certain aspects of the international swaps white paper he released in October of last year. The Senate also approved Trump pick Mark Calabria to head up mortgage finance companies Fannie Mae and Freddie Mac. Calabria is currently chief economist for Vice-President Pence.

The Committee on Foreign Investment in the United States (Cfius) took a bold step into enforcement by issuing a financial penalty to a company that breached the terms of its mitigation agreement. The $1 million fine makes a strong statement that the Committee is willing to impose such punishments.

In the interbank offered rate (Ibor) space, the Fed's Alternative Reference Rates Committee (ARRC) released a number of its fallback contract language recommendations for contracts that reference USD Libor. While extensive, the language is inconsistent between products, which adds uncertainty to the ongoing saga. Elsewhere the Fed added the Ibor transition to its stress testing exams to make sure that banks are able to handle the inevitable.

The Federal Reserve also made proposals that would simplify the living wills aspects of its resolution planning framework for larger banks, as well as regulatory capital requirements for US subsidiaries of foreign banks, in a move to maintain resilience while tailoring rules to individual risk.

Looking south, President Trump has triumphantly announced a solution to the problem he created in Mexico. Lifting trade tariffs, Trump secured a new deal with the country after threating additional charges – despite an ongoing trade war with China that looks unlikely to come to a quick resolution.

In Venezuela an attempted coup to overthrow President Maduro failed, weakening the position of US-backed opposition leader Guaidó. The country remains on a knife-edge, and despite recently reopening its border with Colombia, has an incredibly uncertain future.