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Citi faces regulatory reprimand; UBS mulling Credit Suisse acquisition

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Bracing for impact

“Federal regulators are preparing to reprimand Citigroup for failing to improve its risk-management systems. The expected rebuke from the Office of the Comptroller of the Currency and the Federal Reserve accelerated planning for Chief Executive Michael Corbat’s retirement,” although he wasn’t asked to step down. “Rather, he came to believe that an expensive, multiyear systems overhaul designed to address regulators’ concerns was best left in the hands of his successor, Jane Fraser.” Last week the bank “said Mr. Corbat will retire in February, surprising analysts and investors who expected him to remain in the job for a few more years.”

“For years, regulators have privately pressed Citigroup and Mr. Corbat to fix the bank’s risk systems. A public rebuke would significantly ratchet up the pressure. A recent high-profile flub, Citigroup’s accidental $900 million payment to creditors of Revlon, was seen as evidence of weaknesses in the system.”

Citi “will resume job cuts as the bank battles to contain costs while investing heavily in its risk and control systems to assuage concerns from U.S. regulators,” the Financial Times said Tuesday. “The job cuts will help to offset significant investments in Citi’s operational controls, which regulators have long viewed as deficient.”

“Citigroup will establish new internal oversight guidelines, spend more on technology and take other steps to upgrade risk systems, CFO Mark Mason said at an industry conference in discussing the aftermath of the bank’s mistaken $900 million payment,” American Banker’s Allissa Kline reports.

Klarna cash

Klarna, the Swedish retail installment lender that is growing rapidly in the U.S., is now worth double what it was a year ago following a $650 million investment round that values the company at about $11 billion. The latest round was led by Silver Lake, the U.S. private equity firm, which put in $500 million.

“Klarna—last valued at $5.5 billion in August 2019—will become the most highly valued private financial-technology company in Europe,” the Journal said. “The company, which has a presence in markets throughout Europe, the U.K., the U.S., Canada and Australia, plans to use the money to continue its global expansion and to develop new products and services.” Wall Street Journal, Financial Times

Wall Street Journal

Fed appointment

The Federal Reserve has named Trevor Reeve, “a senior adviser to Chairman Jerome Powell, to the powerful role of director of its monetary affairs division.” He succeeds Thomas Laubach, who died of cancer two weeks ago. Reeve had been the division’s deputy director.

“The director of the monetary affairs division is a key participant in meetings of the central bank’s rate-setting Federal Open Market Committee, tasked with preparing briefings, strategies and the heavily scrutinized policy statements delivered upon their conclusion. In elevating to the post Mr. Reeve, the Fed is facilitating a smooth transition at a challenging juncture for policy planning. With the appointment, the Fed will have relatively new leadership atop three key staff positions that oversee hundreds of economists at the Washington-based board of governors. Mr. Powell has elevated well-regarded bank insiders to each of those posts.”

Financial Times

Swiss deal?

UBS chairman Axel Weber “has mapped out a merger with Credit Suisse that would create a unified Swiss champion in wealth management and investment banking.” Weber has hired “external management consultants to examine the potential for a deal but no formal discussions have taken place with Credit Suisse or with managers or directors at UBS.”

“A merger between the two heavyweights of Swiss banking has been considered by executives at both banks over the years, but the fear of hitting antitrust barriers has prevented talks from progressing. However, European regulators have become more open to giving the green light to M&A deals in the banking sector as a way for struggling lenders to achieve economies of scale.”

Separately, Weber and Santander chair Ana Botín will be called to testify in former UBS investment banking chief Andrea Orcel’s suit against the Spanish bank. Orcel “is suing Santander for €112 million alleging that the bank’s reversal of its September 2018 decision to appoint him [as its CEO] constitutes breach of contract.”

Elsewhere

First on climate

“New Zealand will be the first country in the world to require the financial sector to report on climate risks, its minister for climate change James Shaw said Tuesday,” Reuters reported. “Businesses covered by the requirements will have to make annual disclosures covering governance arrangements, risk management and strategies for mitigating any climate change impacts. Those unable to disclose must explain why.”

“In total, around 200 of the country’s biggest organizations will be required to disclose their exposure to climate risk, including banks and asset managers with total assets of more than NZ$1 billion.” Foreign-based companies are also covered by the rules.

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