Top banking news this month: September 2022

In this month's roundup of American Banker's favorite stories: Home appraisers get disillusioned, a couple lives mortgage-free for 13 years, digging into the cracks in credit quality, quantum computing's future in banking, and more.

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

Houses in Idaho

Home appraisers are fed up with how their industry is run

Article by Kyle Campbell
When Lori Noble became an apprentice home appraiser in 1995, she felt she'd found her calling. 

It was analytical but allowed her to work outside. She could own her own business and serve her community in southern West Virginia. The opportunity for growth seemed almost limitless. Until it wasn't.

"I really thought that I was at the forefront of something new and different, and I just found every move that I made, I got squashed," Noble said. "There was no opportunity. I guess if you live in a big city or something like that, but not for any rural or underserved provider. There's not a lot of opportunity. You have to make it yourself and that's what I was ready to do, but they take that away from you."

Click here to read the full story.
Foreclosure_Notice

California couple held off foreclosure for 13 years in mortgage servicer nightmare

Article by Kate Berry
A California couple that hasn't made a mortgage payment since 2009 will finally be forced out of their $1.7 million home after a state court ruled last month that they had exhausted repeated appeals, paving the way for their servicer CitiMortgage to foreclose on the property.

The story of how the couple, Anita and Mahesh Khurana, managed to evade foreclosure for 13 years on their home in San Ramon, California, is a complicated legal tale. The couple obtained an initial loan modification in 2009 but failed to make payments after six months. Their efforts to stay in their home came at the height of the financial crisis when servicers were overwhelmed by requests for loan modifications and policymakers at the state and federal level had crafted requirements aimed at helping defaulted borrowers stay in their homes. 

"It's very unusual for something to go on that long for 13 years — it's rare, " said Roland Reynolds, a partner at Gordon & Reynolds, a Los Angeles law firm that represents financial institutions, private lenders and servicers. "The borrower is usually somebody who is very good at fighting on several fronts, but to get to 13 years you really have to combine it with some sort of decision by the servicer not pressing their rights as much as they could."

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San Francisco Girds For Blow of Office Workers Never Returning

The four potential cracks in banks' credit quality

Article by Jim Dobbs
In many ways, banks reflect economic conditions. In periods of growth, lending rises and income jumps. When the economy contracts, credit demand and borrowers' ability to repay existing loans suffer. Losses for banks often follow.

Given this, it's no wonder there has been much hand-wringing in the industry over whether a downturn lurks or is even already underway. And there are certainly some signs that bankers should be worried, including U.S. gross domestic product shrinking in the first and second quarters.

To combat inflation, the Federal Reserve this year has lifted rates four times through July, with the last two hikes each 75 basis points. Those hikes marked the biggest increases since the early 1990s. When rates rise swiftly, borrowing costs spike. As a result, consumers and business owners typically delay big-ticket investments that require financing.

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Chase ATMs at night

How JPMorgan Chase and other banks plan to use quantum computing

Article by Penny Crosman
Though quantum computing technology is still new, JPMorgan Chase, Ally Bank, Credit Agricole and other banks are actively testing and in some cases using it, according to speakers at the HPC + AI on Wall Street conference in New York this week.

"We realize that if a company doesn't do anything about the market right now, and just waits for quantum advantage to become a reality, when quantum advantage becomes real, it might be too late," said Marco Pistoia, managing director, distinguished engineer, head of global technology applied research and head of quantum computing at JPMorgan Chase. "We want to be ready when quantum advantage becomes possible on a higher level."

These banks are not attempting to buy and use quantum computers directly. They are using cloud-based quantum-computing-as-a-service offerings from companies like D-Wave, IBM, Google, Amazon, Rigetti, Microsoft and QC Ware. They're testing the advanced computer power for complex problems like portfolio optimization and index tracking.

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Signage is displayed at a U.S. Bank branch in downtown Chicago.

U.S. Bancorp gives itself three more months to close MUFG Union merger

Article by Orla McCaffrey
U.S. Bancorp has extended its agreement to purchase MUFG Union Bank by three months, until the end of 2022, the Minneapolis-based company said on Sept 16.

Earlier this month, executives at the parent company of U.S. Bank said they expect the deal to close later in the second half of this year. When the $8 billion cash-and-stock acquisition was announced last September, executives projected a closing around June 2022.

The deal extension comes during a period when large-bank deals are drawing increased scrutiny and vocal pushback.

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Lakeland bank

Deal for Lakeland Bank has an issue lurking beneath the surface

Article by John Reosti
Provident Financial Services in Iselin, New Jersey, is pursuing a $1.3 billion deal for a rival, Lakeland Bancorp, despite concerns over commercial real estate concentrations and an ongoing fair-lending investigation of Lakeland by the U.S. Department of Justice. 

Lakeland disclosed the existence of the Justice Department investigation Tuesday in an 8-K Current Report filed with the Securities and Exchange Commission. Lakeland said it has "cooperated fully" and is in settlement talks. The company added that it "expects such settlement to be generally comparable to other recent DOJ fair lending settlements."

The $10.4 billion-asset Lakeland, of Oak Ridge, New Jersey, said it could be asked to strengthen policies, procedures and training, boost community outreach and establish a mortgage subsidy fund as part of a potential resolution.

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Are there too many banks?

Article by Jackie Stewart
How many banks should there be in the United States? It's a question that merits consideration.

Consolidation has gripped the banking industry for the better part of three decades. Since 1934, just after the creation of the Federal Deposit Insurance Corp., the number of commercial banks peaked at 14,469 in 1983. This number had fallen to roughly 4,200 commercial banks at the end of last year. Although there have been ebbs and flow in M&A activity, there is broad — perhaps unanimous — consensus that even more consolidation is inevitable.

But how far will the industry consolidate, and how many banks will the U.S. ultimately end up with? Is there something that will prevent America's financial system from shrinking until it resembles something like the Canadian banking system (about 80 banks operate in that country) or the airline industry (roughly 60 providers)?

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Crypto/bitcoin payment

What's still missing from crypto payments?

Article by John Adams
Using digital assets to buy something isn't nearly as fringe as it was just a couple of years ago, placing PayPal's Jose Fernandez da Ponte squarely at the forefront of a new age of payment innovation. 

"A significant volume of transactions will move to crypto writ large," said Fernandez da Ponte, PayPal's senior vice president of blockchain, crypto and digital currencies. "Whether it's crypto, fiat-backed stablecoins or [central bank digital currencies], there's momentum."

PayPal is considering building its own stablecoin to take advantage of the growing interest in cryptocurrency payments. While the market swings in cryptocurrency valuation in 2022 and the high-profile failure of the Terra stablecoin have cooled some of the buzz, companies like PayPal and the card networks, and traditional financial institutions like Silvergate Bank, are pushing ahead with payment projects, seeking the right mix of technology, partners and size.  

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Destroyed vehicles and washed away shorelines bordering local towns in Puerto Rico.

Credit unions step up for Puerto Rico in wake of Hurricane Fiona

Article by Frank Gargano
Credit unions and their trade groups are helping Puerto Rico rebuild from the devastation of Hurricane Fiona by following a gameplan set five years earlier, when Hurricane Maria tore through the island.

Maria left mainland organizations and more rural "cooperativas" struggling with fuel shortages and the lack of power, and this amplified the devastation of Fiona's arrival earlier this month, said Pablo DeFilippi, executive vice president of the Inclusiv Network, an association of credit unions serving economically disenfranchised communities.

"One of the reasons I think [Fiona was more damaging], in just talking to some of our members, is that Hurricane Maria changed the topography [of Puerto Rico] in 2017. … Places where it used to be safe are now more exposed and more prone to flooding and things like that," DeFilippi said.

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Why bank stocks are down when lending is up

Article by Jim Dobbs
Banks have collectively reported solid earnings growth so far this year, and many analysts expect the good times to extend through the third quarter as lenders benefit from rising interest rates.

Yet the KBW Nasdaq Bank Index is down more than 25% this year, reaching a fresh 2022 low on Monday.

How to reconcile this?

In short, the Federal Reserve's aggressive interest rate hikes — last week it boosted its benchmark rate for a third time this year by 75 basis points — have boosted lending profitability for banks, and should continue to do so. When rates jump, banks earn more in bread-and-butter interest income and often post stronger overall earnings. But customers also pull back on borrowing, or struggle to make payments, amid economic uncertainty.

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