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Citi fined $400M over risk control; Scharf begins year two at Wells under cloud

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Out of control

The Federal Reserve and the Office of the Comptroller ordered Citigroup to fix its risk-management systems, citing “significant ongoing deficiencies,” with the OCC fining the bank $400 million, the Wall Street Journal reported.

“In a consent order agreed to by the New York bank’s board, the Federal Reserve faulted Citigroup for falling short in ‘various areas of risk management and internal controls’ including data management, regulatory reporting and capital planning. The OCC said the fine was punishment for the bank’s ‘longstanding failure’ to remedy problems in its risk and data systems.”

“We are disappointed that we have fallen short of our regulators’ expectations, and we are fully committed to thoroughly addressing the issues identified in the Consent Orders,” the bank said. “Citi has significant remediation projects underway to strengthen our controls, infrastructure and governance.”

“The fine comes on the heels of news that, in August, Citi mistakenly wired $900 million to creditors of one of its clients, Revlon, sparking a protracted legal fight,” the Financial Times noted.

But “the Revlon mishap is not Citi’s only recent error,” the New York Times said. “The OCC cited the bank’s violations of the Fair Housing Act in 2019 and the Flood Disaster Protection Act earlier this year, and attributed both to Citi’s inadequate risk management procedures.”

“The bank has also had trouble keeping track of the flow of illicit funds through its accounts. Over the past few years, it has grappled with problems in its Banamex USA unit, where prosecutors in 2017 said drug smugglers were using the bank to sneak dirty money into the United States from Mexico. Citi paid more than $97 million to settle a criminal inquiry into Banamex.”

“The actions follow a Fed consent order against Citi in 2013, which identified deficiencies in the bank’s anti-money-laundering compliance program, and a separate consent order the Fed issued against Citi in 2015 related to its compliance and control infrastructure,” American Banker’s Hannah Lang reported.

Happy anniversary?

Charlie Scharf starts his second year as CEO of Wells Fargo on the defensive, the Wall Street Journal says. “He was brought in to restore the bank’s tarnished reputation. In the year since, his problems have only multiplied.”

In addition to dealing with the effects of the coronavirus shutdown and record low interest rates, “the bank is still in hot water with regulators. Then there are the self-inflicted wounds. Mr. Scharf has drawn fire from employees and Washington lawmakers for filling top jobs with a largely white, largely male cadre of former colleagues—and for saying there were few Black candidates with the required experience for those positions. The episode damaged morale within the bank, especially among Black staffers.”

Meanwhile, the bank “has started to cut jobs at its commercial banking unit as part of larger reductions that will impact nearly all of its functions and business lines,” Reuters said, citing a Bloomberg News report that the bank “has cut 700 jobs as part of workforce reductions that could ultimately impact ‘tens of thousands’ of staff.”

“We are at the beginning of a multiyear effort to build a stronger, more efficient company for our customers, employees, communities and shareholders,” a spokeswoman told Reuters. “The work will consist of a broad range of actions, including workforce reductions, to bring our expenses more in line with our peers.”

Wall Street Journal

Bridging the gap

JPMorgan Chase said it is “committing a total of $30 billion over five years to make additional loans to Black and Latino home buyers and small-business owners as part of a push to narrow America’s racial wealth gap. Some $8 billion will go toward funding an additional 40,000 mortgages to Black and Latino home buyers. JPMorgan also said it would devote $14 billion to finance 100,000 affordable rental units, lend $2 billion to small businesses in majority Black and Latino communities and open new branches in underserved areas of Chicago, Los Angeles and Detroit.”

Financial Times

Familiar pickle

Think the U.S. is the only country to run into problems with a loan program intended to help small businesses? The U.K.’s National Audit Office expects £26 billion of the £43 billion in “bounce back” loans to default. Fortunately for the country’s banks, the loans are guaranteed by the government, although lenders are required to try to collect on them, and “debt collecting hasn’t made banks popular in the past,” the FT notes.

“No one wants to be the bad guy collecting debts. Lenders will have to collect nonetheless. But as it stands, the government’s agreement with the industry could mean banks need not put much effort or resources into collecting the debt on taxpayers’ behalf. They may yet emerge as good guys if they can establish imaginative ways of helping companies manage their debt burden or even turn it into something lighter and more flexible.”

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