Investor news: Mastercard targets crypto, Comerica to settle fraud suit

Banks have recently navigated challenges ranging from lawsuits and settlements to adapting payments technology to include crypto, and even broad skepticism in the wake of bank failures. But a strong federal jobs report in early June boosted confidence within the industry, with the market reflecting the positive news at that time.

After two years of high interest rates, investors entered 2024 increasingly concerned about credit deterioration. But loan charge-offs, while up some across the industry, remain low by historical standards. The employment data indicated that this trend could continue, supporting bank earnings as the year progresses.

Gross domestic product increased at an annual rate of 1.3% in the first quarter of 2024 after advancing 3.4% in the final quarter of 2023, according to the Bureau of Economic Analysis. The Federal Reserve Bank of Atlanta on June 7 projected second-quarter growth of 3.1%.

Investors have shifted their focus from concerns that a strong labor market would delay Fed policymakers‘ decision to cut interest rates to the benefit of a strong economy for banks, analysts said. They noted that, after raising rates several times in 2022 and early last year to combat inflation, Fed officials have kept rates flat since July and continue to signal that their next move is a rate reduction.

Fed officials said in statements this spring that job market weakness might hasten rate cuts but continued strong conditions would not automatically sound alarms, given that inflation has dropped from a peak of 9% in 2022 to near 3% this year. The Fed is targeting 2% and is focused more on inflation data than jobs at this stage. The Fed “will of course take these figures into account,” but the latest job data is “unlikely to shake policymakers off the course already charted,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Read more: Is the Fed’s tough love approach to housing too tough? 

Elsewhere in the industry, payments companies, including PayPal and Mastercard, are leading efforts to generate more demand to expand crypto beyond the most knowledgeable, tech-savvy users and early adopters. One of the major issues with consumer adoption of crypto and digital assets has been the user experience, according to James Wester, research director for digital assets and crypto at Javelin Strategy & Research.

“It’s not intuitive to send and receive crypto using most crypto wallets, and the consequences of getting it wrong, such as sending the wrong crypto to the wrong wallet type, is the potential loss of the assets,” Wester recently told American Banker.

That makes cryptocurrency an unattractive option for most payment types, especially given how many other familiar payment methods are already available, according to Wester.

Read more: How close is the payments tech industry to a turnaround?  

“With its crypto credential, Mastercard is looking to solve both the challenge of sending and receiving crypto and the potential for sending crypto to the wrong type of crypto address,” he said. “These are the types of solutions that crypto is going to need to address the issues around the clunky user experience.”

Visa and Mastercard have pursued cryptocurrency by focusing on stablecoin acceptance, working with governments on central bank digital currencies and simplifying credentials to access blockchain-powered products. 

Read more about the recent issues facing the banking industry and what these mean for investors.

The 20 top-performing publicly traded banks with under $2B of assets

American Banker publishes an annual list of the top-performing publicly traded banks with under $2 billion of assets using data compiled by the consulting firm Capital Performance Group. The ranking is based on data from year-end 2023 and uses the institutions’ three-year average return on average equity, or ROAE, to determine the ranking. 

For 2024, FFB Bancorp topped the list, moving up from its ranking of No. 4 last year. The Fresno, California-based institution’s ROAE was 29.7%, roughly double the median of 14.87% for the top 100. For all publicly traded banks with under $2 billion of assets, the median ROAE was 10.91%. 

Read more: The 20 top-performing publicly traded banks with under $2B of assets 

New NYCB leadership faces tough questioning from shareholders

New York Community Bancorp’s new executive management team presented to shareholders on June 5, answering questions to those who have lost substantial value on their investments.

One shareholder wanted to know why investors should sign off on the additional capital, which came from an investment group led by former Trump administration Treasury Secretary Steven Mnuchin. Although the capital infusion was announced March 6 and closed six days later, New York Community was required to obtain shareholder approval to finalize the deal because of the amount of stock it plans to issue.

“If the capital raise was not ready to go specifically that afternoon, the chances of the company surviving would have been at a peril,” CEO Joseph Otting told shareholders during the meeting. “As we look back today, it was the right decision for the company, it was the right decision for the investors, and collectively we will work very hard to reestablish the value of this company going forward.”

Read more: NYCB’s new leaders face skeptical shareholders in wake of turmoil 

Settlement reached in Comerica Bank’s Direct Express lawsuit

Comerica Bank agreed to a proposed $1.2 million settlement to a class-action lawsuit that would end a five-year court battle against $79.4 billion-asset Comerica, which has faced allegations that it mishandled fraud claims, failed to reimburse customers and did not properly oversee third-party vendors of the Treasury Department’s Direct Express program. The majority of the 4.5 million Americans using Direct Express do not have a bank account and receive monthly Social Security, Veterans and other benefits electronically on prepaid debit cards. 

Comerica and Conduent — a large conglomerate and call-center operator based in Florham Park, N.J. — denied any wrongdoing. Even so, the two companies did not track fraud claims and were unable to identify and provide the court with the names of beneficiaries who had filed fraud claims over a four-and-a-half-year period, according to the 97-page proposed settlement. 

“Defendants expressly reserve their position that Direct Express customers with claims as alleged in this case cannot be identified without an intense file-by-file review and overwhelming individual inquiry,” the proposed settlement states. 

Read more: Comerica to settle Direct Express fraud class-action lawsuit for $1.2 million 

Bank stocks reflect optimism from recent federal jobs report

A positive June 7 federal jobs report led to bank stocks advancing, with the KBW Nasdaq Bank Index advancing less than 1% for the day the report was released, but was up nearly 2% intraday. It was up 6% year to date through the first week of June.

Analysts said the favorable data reflects employer confidence in growth and continued economic strength in 2024 after a solid gross domestic product performance last year. A sturdy economy typically empowers borrowers to make loan payments, and banks, in turn, report low levels of credit losses.

“The U.S. economy continues to be resilient,” Henk Potts, market strategist at Barclays Private Bank, recently told American Banker’s Jim Dobbs. Potts expects the 4% jobless rate to mark a peak and that it will remain “low when compared to historical standards” through 2024.

Read more: Bank stocks advance following robust employment gains

Mastercard’s plans to coordinate digital payments and crypto

Mastercard says that it can create parity between digital and cryptocurrency payment methods, and to this end it is adding its scale and name recognition to cryptocurrency credentials, an older concept that attempts to ease the manner in which people identify the rails involved in cryptocurrency payments. 

Mastercard’s crypto credentials employ an alias that crypto exchanges use to process cryptocurrency payments, replacing the blockchain addresses that are normally used. A blockchain address varies in size and structure, but it’s usually between two and three dozen characters that identify the sender and recipient of a cryptocurrency transfer. The alias is a smaller, plain-language identifier that is easier to remember, conceptually similar to an email address. 

“There are multiple blockchains out there, all operating on the premise that there is a decentralized infrastructure to provide access,” Raj Dhamodharan, executive vice president of blockchain and digital assets at Mastercard, recently told American Banker’s John Adams. “That is good and is here to stay. But if you want a healthy transaction, what you want is a verified identification. We want to put standards behind that verification.” 

Read more: Mastercard asks: Is crypto still too complicated for payments?