1MDB may scar Goldman image; Airlines soar with card fees

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Bad optics
Goldman Sachs’ “push for Asian business and lax oversight of partners led the bank to speed past warning signs” into the 1MDB debacle, a deal that “has ensnared Goldman in one of the largest financial frauds in history and darkened the early days of its new chief executive, David Solomon,” the Wall Street Journal reports,

The bank’s attempts to “recast its image” from “a symbol of Wall Street greed during the financial crisis” to “an investment bank that cares as much about ethics as it does its bottom line … is being undone by the Malaysian fund scandal,” the New York Times says. “It is one of the most serious crises in the bank’s 149-year history.”

Meanwhile, Goldman is claiming it’s the victim after the Malaysian government filed criminal charges against the bank on Monday morning and demanded at least $3.3 billion in restitution. "Certain members of the former Malaysian government and 1MDB lied to Goldman Sachs, outside counsel and others about the use of proceeds from these transactions,” the bank said.

Watch your step
U.K.-based startup Simudyne and Mitre Corp., a U.S. federally funded research company, are working together to find a “more realistic way” to model financial risk that could help “big banks and regulators spot potholes, even if it can’t stop people falling into them.” Their method uses so-called “agent-based” modeling and data such as “asset fire-sales and investor flight from banks and funds” in order to “simulate market activity.”

Along the same lines, Experian says it will start adding cellphone and utility payments to consumers’ credit reports early next year, “a move that will likely boost the credit scores of millions of people and increase loan approvals," the Journal says. "The development, which marks the first time U.S. consumers will be able to provide this data for their credit reports, is the latest in a number of changes that will likely increase credit scores for consumers who have low or no scores because they have a limited history of borrowing from banks and other mainstream lenders. The move could also help subprime borrowers whose scores are currently lower than what some lenders require.”

Meanwhile, JPMorgan Chase says it will be fussier in which projects get approved for its nearly $11 billion technology budget, rejecting proposals from its bankers and traders unless they are “scalable.”

“We can’t afford to make bets on things that, even if they’re successful, are still small and not scalable,” said David Hudson, co-head of the bank’s new Digital & Platforms Services unit.

Wall Street Journal

The cost of omission
UBS agreed to pay $15 million — $5 million each to the Treasury Department, the Securities and Exchange Commission and the Financial Industry Regulatory Authority — over regulatory deficiencies in its anti-money-laundering program, including violating the Bank Secrecy Act. The bank "failed to adequately monitor — despite red flags — foreign currency-denominated wire transfers that amounted to tens of billions of dollars that were conducted through its commodities accounts and retail brokerage accounts," the regulators said.

Not a safety blanket
Fees from co-branded credit cards have helped fatten profits at U.S. airlines in recent years, so much so that they’ve enabled the carriers to negotiate even better deals with banks. But “the balance may shift back if there is a recession and ticket sales plummet,” the Heard on the Street column warns. Those fees “won’t be the hedge against bad times that some investors are hoping for. A downturn would also reduce usage of credit cards. With their wealth of data and boom-time profits, credit cards are sensible investments for airlines to make. But they won’t save the industry from the economic cycle.”

Short memories
Former Countrywide Financial CEO Angelo Mozilo — often viewed as the poster boy for the housing debacle that caused the global financial crisis — got a standing ovation at last week’s National Association of Mortgage Brokers meeting in Las Vegas. “Based on his warm reception, he at least has the power to cause temporary amnesia,” the paper quips.

Financial Times

Tell me more
European banks have done a good job of preparing for Brexit — orderly or not — but are not giving customers enough information about how the U.K.’s exit from the European Union may affect their services, the European Banking Authority says. “The EBA has observed ... little evidence of financial institutions communicating effectively to their customers on how they may be affected by the U.K. withdrawal,” the agency said Monday. “The EBA urges such institutions to ... swiftly provide adequate information on the risks and mitigating measures being taken.”

Bad loan sale
Lone Star, the U.S. private equity firm, has agreed to buy more than €3 billion in “toxic” real estate assets from Spanish bank Bankia. “Spanish lenders have been making a determined effort to clean up their balance sheets since Spain’s decade-long property bubble burst in 2008. All of Spain’s major banks have sold large bad loan and foreclosed asset portfolios.”

Preparing for disaster
The Bank of England has laid out the ground rules for the living wills large U.K.-based banks must create to show they can be wound down in a financial crisis without a taxpayer bailout. The seven banks with more than £50 billion in retail deposits must submit plans by 2020 and implement them two years later.

Quotable

“It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!” — President Trump’s latest Twitter criticism of the Federal Reserve.

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