Deutsche Bank fined for Epstein dealings; FICO unveils 'Resilience Index'

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Deutsche dealings

The New York State Department of Financial Services fined Deutsche Bank $150 million on Tuesday “for failing to properly monitor its dealings with the late financier and convicted sex offender Jeffrey Epstein, ” the Wall Street Journal reported. “The fine, marking the latest in a series of run-ins with U.S. regulators for the German lender, was issued also in part for its relationship with two European banks embroiled in money-laundering scandals. In those cases, too, Deutsche Bank failed to act on clear red flags, which resulted in those banks being able to transfer funds, including to the U.S.”

“In each of the cases that are being resolved today, Deutsche Bank failed to adequately monitor the activity of customers that the bank itself deemed to be high risk,” Superintendent of Financial Services Linda A. Lacewell said, adding that “despite knowing Mr. Epstein’s terrible criminal history, the bank inexcusably failed to detect or prevent millions of dollars of suspicious transactions.”

“The settlement described how bank employees had relied on informal meetings and institutional momentum to allow suspicious activity to proceed largely unchecked,” the New York Times said. “Instead of performing appropriate due diligence on Mr. Epstein and the activity in his accounts, regulators wrote, the bank was focused on his potential to ‘generate millions of dollars of revenue as well as leads for other lucrative clients.’”

It “marked the first enforcement action against a bank for its dealings with Epstein, who was convicted in 2008 of soliciting sex from a minor and subsequently arrested last year on federal charges of sex trafficking underage girls,” the Financial Times said. “It is also the latest monetary penalty for Deutsche, which has paid billions of dollars in fines and settlements for a number of misconduct issues over the past decade, in an attempt to shed its reputation for high-risk relationships and poor compliance controls.”

“Our reputation is our most valuable asset and we deeply regret our association with Epstein,” company spokesman Daniel Hunter said.

Meanwhile, Deutsche Bank “has emerged as one of the potential suitors of Wirecard’s payments processing business, which is not part of [that company’s] insolvency procedure and is processing payments as normal,” the FT reported. Deutsche CEO Christian Sewing on Tuesday said that it was “almost an obligation” for Germany’s largest bank to look at Wirecard Bank, “given Deutsche’s focus on transaction banking and payments.”

But it may have some competition. “More than 100 potential bidders have flagged their interest in buying parts” of Wirecard, the company’s administrator said Tuesday.

Wall Street Journal

Size matters

The nation’s two biggest banks, JPMorgan Chase and Bank of America, “are in line to split between $1.5 billion and $2.6 billion in fees” for being the two biggest lenders through the Paycheck Protection Program. “In total, more than 4,000 lending institutions are in line to split $14.3 billion to $24.6 billion in processing fees for PPP loans,” according to a study by two academics.

“Big banks including JPMorgan, Bank of America and Wells Fargo have said they would donate whatever profits they make on PPP.”


Despite “global policy makers responding decisively to the coronavirus outbreak, the financial system isn’t out of the woods yet,” Federal Reserve vice chairman for financial regulation Randal Quarles said Tuesday.

“The COVID event is not behind us yet,” he said at a speech in Washington. “We know that the financial system will face more challenges. While some indicators suggest a rebound in activity, the path of recovery remains highly uncertain.”

Financial Times

Retaining control

Quicken Loans founder Dan Gilbert “will retain complete control of the company following its initial public offering, even as the cash proceeds of the flotation flow into a private entity under his control.” That entity, Rock Holdings, will “control 79% of the voting power in the company.”

“How much Rock and Mr. Gilbert will net from the sale will depend on investors’ appetite for backing a mortgage lender at a time of significant economic upheaval in the U.S. A placeholder figure in the prospectus said it would raise $100 million, though the amount is likely to be much more.”

Women’s club grows

BNY Mellon Investment Management “has appointed Hanneke Smits as chief executive, making the London-based executive one of the most powerful women in asset management. The appointment represents a significant step up for the relatively low-profile Ms. Smits, propelling her into the influential position of leader of a multitrillion-dollar asset management company. The Dutch native will become one of a relatively small number of women running global fund managers, alongside Mary Callahan Erdoes, chief executive of asset and wealth management at JPMorgan, Fidelity Investments’ head Abigail Johnson and Michelle Seitz of Russell Investments.”

New York Times

Payday win

The Consumer Financial Protection Bureau Tuesday “formally rescinded a plan to impose new limits on payday lending, handing the industry a major victory by killing off tighter rules that it spent years lobbying to overturn. The change would have limited how many loans borrowers could take in a row and required lenders to verify that they had the means to pay back their debt.”

CFPB director Kathy Kraninger “defended the decision on Tuesday, saying the proposed restrictions had been based on insufficient evidence to justify the harm it would have caused lenders. Although she left in place minor provisions, including one preventing lenders from trying to repeatedly take funds from a borrower’s overdrawn bank account, Ms. Kraninger said scrapping the rest of the rule would ‘ensure that consumers have access to credit from a competitive marketplace.’”

“The changes are projected to save the payday lending industry more than $7 billion a year,” American Banker’s Kate Berry reports. “But the new rule will likely face a legal challenge by consumer advocacy groups that argue the agency did not follow the correct rulemaking procedures.”

Washington Post

Measuring toughness

FICO recently launched a “Resilience Index” to “help lenders figure out which consumers are likely to be financially resilient during an economic crisis.” The new tool “allows financial institutions to continue lending to consumers who might otherwise be cut off from credit or be offered higher-interest loans.”

“We now can predict which consumers are best positioned to withstand a downturn and which ones are not so well positioned,” said Jim Wehmann, executive vice president of FICO Scores, who said the index “has been 10 years in the making.” “The FICO Resilience Index can allow lenders to keep credit flowing to even low FICO scorers and below-average FICO scorers who we can identify for the very first time that they are resilient,” he said.


“My own base case for the evolution of the event would not really say that there would be a material increase in financial firm failures going forward.” — Randal Quarles, the Fed’s vice chairman for financial regulation, assessing the likelihood of bank failures as a result of the coronavirus pandemic.

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Penalties and fines Deutsche Bank Paycheck Protection Program Coronavirus Payday lending CFPB FICO BNY Mellon