Morning Scan

Commercial real estate flashes warnings; banks, fintechs join to fight deepfakes

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Wall Street Journal

Public spat

Citigroup and Brigade Capital Management, a big hedge fund client, “are locked in an uncharacteristically public feud that has embroiled top executives at both firms and laid bare a $900 million mistaken payment by the bank. At the root of the dispute: Citi’s role helping billionaire investor Ron Perelman restructure the corporate loans of cosmetics company Revlon.”

“Until recently, Brigade and its founder, Donald Morgan, had worked closely with Citi. Now Citi and Brigade are slugging it out in court, cutting ties and arguing over the return of around $170 million the fund received when the bank accidentally paid Revlon lenders about $900 million. The fight is the latest example of a big Wall Street bank caught between the competing interests of its corporate and investment clients. For Citi, the dispute, and especially the mistaken payment, have added to a string of missteps over the past decade, raised questions from analysts about the bank’s internal controls and drawn the attention of regulators.”

Booming refis

Driven by refinancings, which jumped “more than 200% from a year ago, the mortgage market recorded its best quarter in years this spring. Lenders issued $1.1 trillion in home loans between April and June, according to mortgage-data firm Black Knight, the biggest quarter in the company’s records, which date to 2000. Purchase mortgages, though, fell 8% from a year earlier.”

One-way street

“The Fed is on a one-way path to a larger role in our economy and government,” Kevin Warsh, a former member of the Federal Reserve, writes in an op-ed. “On the current trajectory, the Bank of Japan might be the model for Fed policy: a large buyer of public stocks and an indistinguishable partner with fiscal authorities. The unimaginable can become the inevitable.”

“The Fed is exercising understandable but unprecedented power at an ahistorical moment. Without vigilance, it will risk morphing into a general-purpose government agency. America cannot afford to have its central bank lose its independence, gravitas and record of success.”

Financial Times

Warning signals

U.S. banks “are increasingly worried about being repaid on loans secured against commercial property, as offices, malls and hotels continue to stand empty. The darkening outlook of banks is laid bare by disclosures on so-called criticized loans, which are flashing warning signals about a borrower’s ability to pay. Among the 10 banks with the largest increases, criticized loans rose by 62% in aggregate in the second quarter, but criticized commercial real estate loans rose by 144%, to $26 billion.”

“The banks with the largest total increases include JPMorgan Chase, Bank of America and Wells Fargo. Criticized loans at those banks are now equivalent to 9%, 13%, and 25% of tier one equity capital, respectively, according to S&P Market Intelligence.”

Stopping deepfakes

“Banks and fintech groups are setting up partnerships to combat the use of doctored video and audio content by fraudsters, as research shows such ‘deepfake’ crimes are the biggest worry among customers. HSBC this week became the latest bank to sign up to a biometric identification system. It will be introduced by HSBC’s U.S. retail banking operation to check the identities of new customers, using live images and electronic signatures.”

“News of these initiatives comes as research shows growing concern about deepfake fraud. According to a University College London report published last month, fake audio and video content now ranks top of 20 ways artificial intelligence can be used for crime — based on the harm it can cause, the potential for profit, ease of use and how difficult it is to stop.”

Competition beckons

Australia-based buy now-pay later lender Afterpay is “capitalizing on surging ecommerce, rapid growth in the U.S. and a shift away from credit cards. Afterpay doubled its customer numbers to 10 million in the U.S., U.K. and Australia in the year ending in June. Last month it began a push into Canada, Singapore and southern Europe, as it rushes to capture market share before a growing band of competitors can catch up.”

“The company’s shares hit a low of A$8.90 in March but are since up almost 800%, for a market capitalization of A$22 billion ($16 billion). However, on Friday the stock closed at A$78.20, down almost 12% over the week,” after PayPal said it would launch a competing product. “In July, Visa said it was doing something similar.”

Dwindling stake

Berkshire Hathaway “continues to aggressively reduce its stake in Wells Fargo. Berkshire has sold more than 100 million shares in Wells, worth almost $2.5 billion, since the end of June, according to a regulatory filing released on Friday. This comes on top of 86 million shares sold during the second quarter.”

“Berkshire now holds 138 million shares in Wells, a 3.3% stake, down from 8.4% at the end of 2019. Now that its ownership has fallen below 5%, Berkshire will no longer be required to file a public report to the Securities and Exchange Commission when it buys or sells shares.”

Washington Post

Future work

“The bank of the future won’t be quite so accommodating” to employees working from home, a Bloomberg columnist says. “While about 10% of staff will probably always work remotely, back-office workers for example, most banking employees — as many as 80% — will probably just get a bit more flexibility. This might involve working remotely for a day a week or up to a week a month. For most bankers, the transition to hybrid work will be evolution not revolution. Any new-won freedom will be limited.”

Elsewhere

Undercover

Credit Suisse “may have spied on more employees under its former chief executive Tidjane Thiam,” a Swiss newspaper reported over the weekend, “citing evidence of two further instances that had previously been undisclosed,” Reuters said. Last week “Switzerland’s market watchdog, FINMA, opened an enforcement case over the spying scandal to examine the bank’s culture and governance and whether management control failures allowed snooping on former executive board members.”

But the newspaper, SonntagsZeitung, “citing multiple sources familiar with the matter, said that two further instances had come to light. The paper cited one source as saying neither the bank’s executive committee nor board of directors had been aware of the two instances.”

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