Goldman, Amazon may offer loans; banks plan to tighten underwriting

Receiving Wide Coverage ...

No free lunch

Paras Shah, Citigroup’s head of high-yield bond trading for Europe, the Middle East and Africa and “one of the highest-profile credit traders in Europe,” was suspended last month for stealing food from the cafeteria in the bank’s headquarters in London, the Financial Times reports.

“Mr. Shah earned about £1 million ($1.32 million) annually including a bonus,” the Wall Street Journal says. “It isn’t the first time a worker in London’s finance industry has paid a price for alleged misconduct away from a core job function. In 2014, the U.K.’s Financial Conduct Authority banned BlackRock fund manager Jonathan Burrows for life for repeatedly evading the correct fare on his train journey to work. The train company said Mr. Burrows had evaded fares worth £43,000, while the fund manager said the amount owed was significantly less. The FCA said at the time that it expected finance workers to act with honesty and integrity at all times.”

Payments purchase

French payments company Worldline agreed to buy rival Ingenico Group for €7.8 billion ($8.6 billion), “the biggest global deal of the year so far, creating a giant in the fast-consolidating European payments sector,” the Journal says.

The deal “brings together Worldline’s strength among merchants in its European stronghold, and Ingenico’s leadership in payments hardware, as well as its growing online commerce business.”

Wall Street Journal

IT upgrade

The Federal Deposit Insurance Corp. has promoted deputy chief information officer Sylvia Burns to CIO “as the agency continues a five-year IT modernization effort to better oversee a banking sector transformed by technology.” Burns, who will manage about 350 IT workers and an annual budget of around $350 million, succeeds Howard Whyte.

“Among the new CIO’s top agenda items will be updating systems and apps to support its geographically dispersed examiners and the increasingly tech-savvy sector they regulate. Ms. Burns’s agenda also includes experimenting with using artificial intelligence to boost the productivity of bank examiners and supporting the use of low-code and no-code tools to build and configure applications quickly.”

Banks less risky

U.S. banks “expect to tighten lending standards as loan performance weakens this year and demand for credit holds steady,” according to the Federal Reserve’s quarterly survey of senior loan officers. The survey “found that banks were more likely to say they planned to tighten standards than to loosen them almost across the board because of unexpected deterioration in the quality of those loans, meaning borrowers could be more likely to default," the paper says. "They also pointed to lower tolerance for risk and a deterioration in the value of collateral this year.”

“In particular, about 30% of lenders said they expected to see more delinquencies among subprime credit-card borrowers this year, and about 27% forecast more delinquencies among subprime car loans. As a result, 18.4% of banks said they expected to tighten credit-card lending standards, and 8.9% said they expected to tighten them for auto loans.”

Preparations continue

The Federal Housing Finance Agency has hired investment bank Houlihan Lokey to advise it on recapitalizing Fannie Mae and Freddie Mac in order to return them to the private sector.

“The announcement underscores the commitment of the independent FHFA and the Trump administration to put Fannie and Freddie on a sound financial footing and release them from government control. Monday’s move allows Fannie and Freddie to hire their own advisers” if and when they go public.

In addition, the FHFA is reorganizing key units and adding staff to position itself for the long term, American Banker reports.

Separately, the Federal Home Loan Banks, a $1.1 trillion network of government-chartered cooperatives that “has become a supplier of cheap funding to the likes of Wells Fargo and JPMorgan Chase, is considering lending to nonbank mortgage institutions and real-estate investment trusts, which have come to play big roles in housing finance. The goal is to help those firms fill the void left by big commercial banks, which have cut back on mortgage lending to all but the most creditworthy customers.”

Going for the Green

Activist investor Starboard Value has taken a 9%, or $150 million, position in Green Dot, the prepaid debit card issuer whose stock has “been under pressure in recent months. In August, the stock fell more than 42% in one day after the company scaled back its revenue and profit outlook for the rest of the year, citing competition from financial-technology startups.” Green Dot’s shares rose by nearly 6% Monday on the news.

Financial Times

Goldman eyes Amazon deal

Goldman Sachs “is in advanced talks with Amazon to offer small business loans in the U.S., as the Wall Street bank turns to Big Tech to break into mainstream areas of financial services,” the paper reports. “Goldman has begun building technology that would allow it to offer loans to small and medium-sized businesses over Amazon’s lending platform. The project, which is likely to involve attaching Goldman’s brand to the Amazon product in some way, could go live as soon as March.”

“An agreement with Amazon would follow [last] March’s announcement of a credit card partnership with Apple, a tie-up that features the bank’s branding on the physical card and in some marketing and gives Goldman a direct channel to Apple’s more than 100 million U.S. subscribers.”

You bet

The head of the newly formed Betting and Gaming Council is calling on U.K. banks and technology companies to do more to prevent gambling addiction “as calls mount for tougher legislation to regulate the sector.”

“Just as we intervene with our customers so banks should as well,” Brigid Simmons told the paper.

Elsewhere

Crisis manager

Credit Suisse, which has been rocked by multiple accusations of spying on its former executives as well as Greenpeace, has proposed adding Richard Meddings, “a British banker with long experience of crisis management, for election to its board,” Reuters reports. “Meddings, chairman of Britain’s TSB Bank, has wide experience helping lenders navigate challenging times, including previously at Deutsche Bank and Standard Chartered.” At TSB, “Meddings assumed executive responsibility after the lender’s chief executive was forced out following a botched migration of customer data which locked out nearly two million customers and wiped millions off parent Sabadell’s 2018 profits.”

Healthy kids

Morgan Stanley said it will donate $20 million “to seven nonprofit groups working to prevent youth suicide and fight depression and other children’s mental health problems.” The Morgan Stanley Alliance for Children’s Mental Health “aims to recruit other donors to help fund the rapid expansion of the groups in the United States, Britain and Hong Kong.”

Quotable

“The banking industry and financial sector is constantly evolving. And the banks have in some ways become IT companies.” — Sylvia Burns, the Federal Deposit Insurance Corp.’s new chief information officer