Discover buyout, NYCB woes: Top banking news for February 2024

March 1, 2024 1:48 PM

In this month's roundup of top banking news: The potential impact of Capital One's purchase of Discover, the downfall of Heartland Tri-State Bank, New York Community Bank's succession planning and more.

Click here to read last month's roundup of banking news.

Bloomberg News

Data breach affects 57,000 Bank of America accounts

Article by Carter Pape

A data breach at Infosys McCamish, a financial software provider, compromised the names, addresses, dates of birth, Social Security numbers and other account information of 57,028 deferred compensation customers whose accounts were serviced by Bank of America.

An unauthorized party — apparently a ransomware group known as LockBit — accessed the customers' information through Infosys McCamish's system, not Bank of America's, according to a letter Infosys McCamish sent to affected customers, published by Maine's attorney general. Bank of America provided standard two-year identity theft protection to the affected customers.

The breach occurred Nov. 3, according to the letter, and Infosys McCamish notified Bank of America about the breach on Nov. 24.

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If Capital One buys Discover, the combined company would have a 19% share of the $1.3 trillion market in revolving consumer loans, according to Brian Foran, an analyst at Autonomous Research.

Bloomberg

What Capital One would get from buying Discover

Article by Kate Fitzgerald and Polo Rocha

Discover Financial Services' new CEO only arrived at his desk at the beginning of February, but the company is already rocketing in a new direction.

Capital One Financial plans to acquire Discover in a $35.3 billion deal that would create a credit card behemoth with its own payments network.

The proposed merger of two of the six largest U.S. card issuers requires approval from federal regulators and is likely to invite heavy regulatory scrutiny. The companies, however, say the deal would help the Discover payments network compete against larger rivals such as Visa and Mastercard.

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New York Community Bancorp Chairman Alessandro DiNello seated at a desk at left, and President and CEO Thomas Cangemi in separate photo on right.

New York Community Bancorp said on Feb. 7 that Alessandro DiNello (left) has moved from nonexecutive chairman to executive chairman. He was president and CEO of Flagstar Bancorp until its acquisition by New York Community in late 2022. Thomas Cangemi (right) remains president and CEO.

New York Community elevates former Flagstar CEO amid continuing turmoil

Article by Allissa Kline and Polo Rocha

In the hours between the stock market's close on Feb. 6 and its opening the next morning, New York Community Bancorp appointed an executive chairman, tried to reassure investors about the health of its deposit base and said that it's moving to replace its recently departed chief risk officer.

The actions came after the company's share price plunged by more than 59% over the last week.

The parent company of Flagstar Bank said the morning of Feb. 7 that Alessandro DiNello, the former president and CEO of Flagstar, who had been serving as nonexecutive chairman of New York Community, is now executive chairman of the $116.3 billion-asset company. DiNello was named nonexecutive chairman in December 2022, when New York Community acquired Flagstar.

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Heartland Tri-State Bank in Elkhart, Kansas, was taken over by regulators in July. Former CEO Shan Hanes was indicted on charges of embezzling more than $47 million from the now defunct institution.

Adobe Stock

Ex-CEO of failed Kansas bank charged with embezzling $47 million

Article by Jim Dobbs

Shan Hanes, the former CEO of failed Heartland Tri-State Bank, was indicted in U.S. District Court on charges of embezzling $47.1 million from the Elkhart, Kansas-based lender before its collapse in July. Federal prosecutors allege that he took money from a local church and a local investment club and funneled it into cryptocurrency investments for his "personal benefit."

Beginning around May 30 and continuing through at least July 7, prosecutors said in court documents, Hanes embezzled funds from the $139 million-asset Heartland Tri-State and its customers "by causing at least 11 wire transfer financial transactions" from the bank. He "did not have authority to make the wire transfers or to use Heartland Tri-State Bank funds to purchase cryptocurrency."

The transfers ultimately resulted in investments that flopped and, by extension, in losses for the bank that "caused" its failure, prosecutors with the U.S. attorney's office in Wichita, Kansas, alleged.

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Inside Citigroup Inc. as Post-Brexit Adjustment Doubles Paris Trading

Benjamin Girette/Bloomberg

Regulators push Citi to move faster on risk management fixes: Report

Article by Allissa Kline

More than three years after Citigroup was penalized in connection with risk management problems, regulators have stepped up their pressure on the New York megabank, according to a Reuters article on Feb. 12.

Citi received three notices late last year from the Federal Reserve, which implemented six-month and 12-month deadlines by which the bank must make changes to the way it measures particular risks, according to the story, which cited an email and an anonymous source.

The $2.4 trillion-asset bank also recently failed exams by the Office of the Comptroller of the Currency, the report said. Those exams were meant to determine whether the company is advancing on data integrity as much as it says it is.

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Capital One has found itself in the middle of a contentious merger before. Its 2011 deal to buy the online bank ING Direct USA, which drew opposition from consumer advocates, was ultimately approved, but only after a review process that took longer than expected.

Jeenah Moon/Bloomberg

Capital One's Fairbank, eyeing 'holy grail,' takes a calculated risk

Article by Polo Rocha

Capital One Financial CEO Richard Fairbank faced plenty of skepticism from big banks when he and his co-founder first pitched concepts that would revolutionize the credit card industry. Only one bank gave them a chance.

Some 35 years later, Fairbank's company could become the biggest credit card lender in America, if regulators sign off on its blockbuster purchase of rival Discover Financial Services.

The proposed merger is already running into opposition from key consumer advocacy groups and Democratic lawmakers. Biden administration officials could ultimately block it. But the deal appears to be a calculated risk by Fairbank, who told analysts on Feb. 19 that acquiring Discover's payment rails would be "game-changing."

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of new PNC President Michael P. Lyons at left, a photo of PNC CEO William Demchak top right, and a photo of a PNC branch bottom right.

PNC has promoted Michael Lyons, left, formerly head of corporate and institutional banking, to president. He succeeds William Demchak, right, who remains chairman and CEO.

PNC promotes from within for president, sets up potential CEO successor

Article by Jim Dobbs

PNC Financial Services Group has tapped a longtime insider to be its president, potentially putting in place the company's next chief executive as it gears up for a new era of growth.

The $562 billion-asset company said on Feb. 20 that Michael Lyons has been promoted to president, succeeding William Demchak, who remains chairman and CEO. Lyons reports to Demchak and oversees PNC's primary operating lines of business. PNC's regional presidents will report to Lyons.

Lyons, 53, had been head of corporate and institutional banking since he joined Pittsburgh-based PNC in October 2011. During his tenure, Lyons helped lead PNC's strategic acquisitions of RBC Bank (USA) in 2012 and BBVA USA in 2021. PNC also said he "spearheaded" the national expansion of the company's corporate businesses and played a key role in building out PNC's treasury management platform.

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Truist's agreement to offload the rest of its insurance business comes just weeks after it announced a $70 million deal to sell an asset-management subsidiary. Both moves are part of the bank's strategy to become leaner and more efficient.

Scott McIntyre/Bloomberg

Truist selling last chunk of insurance business. Now what?

Article by Catherine Leffert

Truist Financial is selling its majority stake in the regional bank's insurance brokerage unit after a year of speculation about its intentions in what was once a priority business line.

The Charlotte, North Carolina, company said on Feb. 20 that it has agreed to sell the remaining 80% of Truist Insurance Holdings to two private-equity firms and other investors. CEO Bill Rogers said on a call with analysts that the transaction — which values the overall unit at $15.5 billion — and a recent agreement to sell an asset-management subsidiary are part of a strategy to make Truist more efficient and pad its capital.

"You've heard me talk a lot recently about the work being done at Truist to simplify our organization and to better control our expenses in our core businesses to drive improved performance in the future." Rogers said. "By selling [Truist Insurance Holdings], we'll have capital capacity to play more offense. … In addition, our significantly stronger balance sheet will be positioned to weather an even wider range of economic environments."

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Five Star Bank and Coastal Community Bank both keep a close eye on their banking-as-a-service partners, which include fintechs.

Banking-as-a-service banks: 'There is a reckoning'

Article by Miriam Cross

The quickening waves of consent orders slamming into financial institutions engaged in banking as a service is spurring change among banks who want to get it right.

"The number one takeaway for banks has to be that banking as a service is not the silver bullet many of them thought it would be for deposit gathering," said Jason Henrichs, founder and CEO of community bank consortium Alloy Labs Alliance. "There is a reckoning that it will involve more investment."

Banks are ultimately responsible for the deposit, lending and credit activity their partners engage in. There are also growing concerns about the reliability of third parties that connect banks to fintechs and their promises to offload some of the compliance burden.

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BMO employees gather on Conversion Day weekend at the BMO facility in Naperville, Illinois.

BMO Financial Group spent 83 hours over Labor Day weekend in 2023 integrating Bank of the West data into its systems.

How BMO merged its technology with Bank of the West's

Article by Miriam Cross

The technology teams at BMO Financial Group were in a form of stasis from the date the bank agreed to buy Bank of the West until the date the deal was approved.

"For 13 months prior to regulatory approval, BMO was doing a ton of work with strategy sessions, but we were still competitors with Bank of the West, so we were not allowed to have any discussion about data," said Angela Sim, the chief technology resiliency, experience and operations officer at BMO. "The moment the regulators gave us the go was prime time for us to move very quickly."

When one bank acquires another, efforts to integrate technology must be put on hold until regulators have given the green light. Once that happens, technological challenges arise that must be solved in a short period of time, from decisions about which systems to keep to how to mitigate problems on conversion day. Although bank M&A dipped in 2023, the trend shows signs of reversing in 2024 — with or without the blockbuster Capital One-Discover deal — meaning more banks will have to make these same decisions.

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