Boardroom war at Credit Suisse; HSBC still looking for CEO
Receiving Wide Coverage ...
Three of Credit Suisse’s largest investors are calling on Chairman Urs Rohner to publicly support CEO Tidjane Thiam or resign, “as a scandal over the surveillance of executives threatens to split the bank’s leadership,” the Wall Street Journal reports. David Herro, a partner at Harris Associates, the bank’s largest shareholder with an 8.42% stake, said “he believes the board’s view of Mr. Thiam is being clouded by continuing attacks against the CEO in the Swiss press, and that he is concerned Mr. Rohner could move to replace Mr. Thiam as soon as this week at a scheduled board meeting.”
"Our point is very simple,” Herro said. “If it comes to a choice of who stays and who goes, do you keep the successful CEO, who has taken all the right steps, or do you keep the person who has been the cause of or been present for all the things that have hurt the bank over the past years? We urge the directors of the company to make the right choice.”
“Relations between Rohner and Thiam have been increasingly strained since revelations that Credit Suisse hired a corporate espionage company to follow Iqbal Khan, a former executive who defected to arch-rival UBS,” the Financial Times says.
“We are at the stage now where it is one or the other,” said Herro, “pointing to a list of prior legal problems at Credit Suisse, including a $5.3 billion settlement with the U.S. Department of Justice over the pre-crisis sale of toxic mortgage bonds and the bank’s involvement in the ‘tuna bond’ scandal in Mozambique.”
BNP Paribas, France’s largest bank by assets, “became the latest European lender Wednesday to cut its financial targets due to the impact of ultralow interest rates, despite a sharp uptick in trading revenues,” the Journal reports. “The French lender’s move highlights the headwinds buffeting European lenders and follows similar steps by Swiss banking giants UBS and Credit Suisse.”
While reducing its 2020 profit target, the bank said its fourth quarter 2019 net income jumped 28%, “driven largely by its investment banking division, where revenues increased by almost a third on strong trading activity and higher market share in capital markets and advisory,” the FT says. “However, BNP cut its key return on equity target for the second year running.”
“With Deutsche Bank in retreat, BNP Paribas is competing for the dubious crown of European investment banking champion,” the Journal adds. “If it gets there depends in part on whether Brexit hobbles its British rival Barclays. Barclays is also eager to build its market share, but the London-based bank may be hampered this year by continued Brexit uncertainty, as the U.K. and European Union negotiate the terms of their future relationship.”
Lender of last resort?
“Over the course of two decades,” Deutsche Bank lent Donald Trump and his businesses more than $2 billion, the New York Times writes in a long feature story, “so much that by the time he was elected, it was by far his biggest creditor. Against all odds, Trump paid back most of what he owed the bank. But the relationship cemented Deutsche Bank’s reputation as a reckless institution willing to do business with clients nobody else would touch. Deutsche Bank’s relationship with Trump, rather than being an odd outlier, is a kind of object lesson in how the bank lost its way.”
Separately, Deutsche Bank’s stock jumped 9% in Europe Thursday to its “highest level in 15 months” after it disclosed that Capital Group has built a 3.1% stake in the bank, making it the fifth largest shareholder.
Wall Street Journal
Ready to rumble
Judy Shelton’s “heterodox views on policy issues including central-bank independence, interest rates and the gold standard” make her a “magnet for controversy” as she prepares for a hearing next week before the Senate Banking Committee on her nomination to the Federal Reserve Board. The panel will also take up the nomination of St. Louis Fed economist Christopher Waller, who is considered more mainstream, at the hearing.
Who’s running the ship?
“HSBC has decided not to name a permanent chief executive when it unveils a strategic overhaul this month, in a move that risks undermining investor confidence in the plan to reshape the lender dramatically,” the paper reports. “Noel Quinn, who was appointed interim chief executive six months ago, is preparing to unveil the shake-up — which will involve at least 10,000 job losses and shrinking HSBC’s investment bank — alongside the lender’s full-year results on February 18. However, four people briefed on HSBC’s plans said Mr. Quinn would not be confirmed on or before February 18 and that the search for a permanent successor was still in progress.”
Three of the bank’s largest investors “warned that a failure to confirm an appointment would raise concerns over whether the interim leader had the authority to implement sweeping changes of the kind that HSBC is planning. They added that it would be difficult for an external candidate to join partway through a strategic overhaul that had already started.”
The Student Borrower Protection Center, an advocacy group founded by former Consumer Financial Protection Bureau official Seth Frotman, “suggests” in a research study that Wells Fargo and online lender Upstart “could be engaging in educational redlining by raising the price of credit for historically marginalized groups,” namely students who attend community college as opposed to those who attend a four-year university.
Both lenders “dispute the findings of the report and question its methodology,” the paper says. But researchers at the group “say they stand by their findings, which are based on publicly available data, and encourage regulators and lawmakers to scrutinize the use of education data in consumer lending.”
“Similar to banks’ history of redlining in the housing sector, the use of education criteria in credit underwriting could result in borrowers of color receiving more expensive loans simply because of lenders’ assumptions and prejudices regarding those who sit next to them in the classroom. What we found raises serious alarms and warrants immediate attention by lawmakers.” — Katherine Welbeck, a civil rights counsel at the Student Borrower Protection Center, which alleges that Wells Fargo and Upstart charge more on loans to community college students