CFPB's real power player; FICO's push to help loan approval

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CRE concerns
Bank OZK’s stock plunged 27% on Friday as it “stoked investors’ concerns about the quality of credit on its books after writing down by $45 million the value of two real estate loans.” The bank, formerly known as Bank of the Ozarks, said the two loans, for projects in North Carolina and South Carolina, have been in its loan portfolio for about 10 years. CEO George Gleason said the bank has no plans to change its business model “at all.”

The news fueled “fears that smaller U.S. banks are taking excessive risks in commercial real estate.” Wall Street Journal, Financial Times, American Banker

Goldman moves continue
Goldman Sachs is replacing its co-heads of investment banking in Asia “where a high-profile corruption scandal has dampened an otherwise strong stretch of deal-making," the Wall Street journal reports. Todd Leland, an adviser to European banks and asset managers who was named last year to help run the bank’s Asia operations, will replace Andrea Vella and Kate Richdale. The shift follows several other management changes under new CEO David Solomon. Wall Street Journal, Financial Times

Wall Street Journal

The man behind the curtain
Brian Johnson, who “spent years as a congressional aide organizing Republican attacks on the Consumer Financial Protection Bureau,” is now the agency’s second-in-command and plays “a central role in the Trump administration’s reshaping of the consumer-finance regulator.” Johnson, the CFPB’s acting deputy director under Acting Director Mick Mulvaney, is expected to stay on after Kathy Kraninger becomes the agency’s permanent director. “Everyone’s eyes are on Mulvaney and Kraninger but it’s Brian Johnson who is pulling the levers behind the curtain,” said Karl Frisch, executive director of Allied Progress, a consumer-advocacy group. “He is kind of the Wizard of Oz.”

New, improved credit scoring
Fair Isaac is planning to roll out a new credit scoring system early next year that also considers how much money consumers have in the bank, not just how they manage their credit. “The UltraFICO Score, as it’s called, isn’t meant to weed out applicants. Rather, it is designed to boost the number of approvals for credit cards, personal loans and other debt by taking into account a borrower’s history of cash transactions, which could indicate how likely they are to repay. The new score, in the works for years, is FICO’s latest answer to lenders who have been clamoring for a way to boost loan approvals. It is among the biggest shifts ever for credit-reporting and the FICO scoring system.”

The adult in the room
John Mack, the former CEO of Morgan Stanley during the financial crisis, now works with fintech startups, “dabbling in bitcoin and watching as the Wall Street he traveled to power — brash and cutthroat — gives way to a mellower brand of finance embodied by his successor,” James Gorman. Mack “is among a handful of former Wall Street executives who are reinventing themselves in fintech. He has tried to advise, and at times rein in, entrepreneurs and founders whose lack of experience has occasionally landed them in trouble.”

Money for nothing
Bank customers have pulled more than $30 billion out of no-interest accounts and moved them into "higher-yielding alternatives," the paper says, a trend that “will crimp banks’ ability to grow profits going forward.”

Chilling effect?
Last week’s charges against an employee of the Treasury Department’s Financial Crimes Enforcement Network for allegedly leaking financial information to a reporter “could give banks pause about what they submit to the government concerning suspicious financial activity.” Although banks are required by law to file suspicious activity reports to FinCEN, “they might be less inclined to do so if they are worried that details might be leaked.”

Financial Times

Silver lining, darkening clouds
The big five Wall Street banks “are on track for their best year in equities trading for a decade, a silver lining to the market turmoil that has created misery for big bank shareholders over the past few months.” Stock trading revenue for the first nine months is up 18% over the same period a year ago, the best performance since the financial crisis.

Still, stock trading is only one business. Overall, the banks are suffering from weak revenue growth. “Loan growth remains puzzlingly soft in a robust economy, and bank fee revenues are on a downward trajectory.”

On the prowl
Nine years after it was fined $780 million by the Department of Justice for helping thousands of clients evade taxes, UBS is expected to announce later this week that it is once again pursuing business with ultra-high net worth Americans. The bank “is planning to hire dozens of high-profile relationship managers and client advisers from U.S. competitors, hoping they will bring their well-heeled customers with them. UBS believes it can poach American clients away from the likes of Morgan Stanley, JPMorgan and Goldman Sachs by using its global network and international set of products.”

Elsewhere

The Yanks are coming
Marqeta, a U.S. fintech startup backed by Goldman Sachs and Visa that helps young companies, including digital-only banks, issue credit and debit cards, is expanding into Europe. The company’s platform makes it easier and more efficient for businesses to offer payments cards.

Quotable

“The big concern I hear from investors is not that banks are in trouble, but there is so much good stuff, and what are they going to do for an encore? Is the risk/reward going to get worse from here?” — Jeffery Harte, an analyst at Sandler O’Neill.

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