Fed eases Wells Fargo asset cap; U.K. bankers forgo bonuses

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Receiving Wide Coverage ...

Wells cap lifted

The Federal Reserve said it would “temporarily and narrowly modify” the $1.95 trillion asset cap on Wells Fargo to enable it to make more loans to small businesses. “Exemptions to the limit apply to loans made through the $350 billion Paycheck Protection Program and the Fed’s Main Street Lending Program, which has yet to be rolled out. Any profits must go to the Treasury or a nonprofit focused on small businesses,” the Wall Street Journal said. The cap will remain in place on all other types of loans.

“The change will amount to a real-time test of whether the nation’s No. 4 bank has fixed the compliance failures that led to the cap, which was imposed after the bank was found to have created perhaps millions of fake accounts,” the Journal said.

“Regulation of the bank remains politically controversial” despite the Fed’s action, the Financial Times said. “While Wells had some support in Congress for relief from the cap, Democratic Senator Sherrod Brown called the temporary lifting ‘troubling.’”

“If the Fed wants Wells to focus on community lending, and if Wells is truly committed to its communities and customers, the bank could instead have given up other risky lines of business in order to serve small businesses,” Brown said.

Wells’ “small business banking operation accounts for a fifth of the United States market,” the New York Times noted. “The growth cap limited lending to a volume of just $10 billion, well under the amount the bank was capable of doing.”

“The modification does not otherwise change the original 2018 enforcement action the Fed took against Wells Fargo after unearthing several scandals,” American Banker said.

PPP update

JPMorgan Chase said it is focusing all of its small business loan attention on the Paycheck Protection Program, the FT reports. The bank “has been inundated with more than 375,000 requests for $40 billion of loans under the $350 billion small business rescue scheme, a higher number of applications than any other bank, its consumer head Gordon Smith told President Trump on Tuesday. A Chase spokeswoman said the bank was now devoting all of its small business underwriting resources to process these applications and had ‘temporarily suspended’ taking other applications from small businesses.”

PPP loans aren’t a good fit for” the U.S. financial ecosystem, the Journal says. “Trying to extend hundreds of billions of dollars of small-business credit through American banks is like putting a round peg into a square hole.” That means the Fed “may end up being small businesses’ ultimate lifeline.”

A high-level Small Business Administration official said big banks have been too slow in helping small businesses through the PPP, the Washington Post reports. Some banks “that had no problem taking billions of dollars of free money as bailout in 2008 are now the biggest banks that are resistant to helping small businesses,” SBA Nevada district director Joseph Amato said in a Monday teleconference about the program.

“Amato’s comments offer a rare candid glimpse at the frustrations of federal officials working with thousands of banks to ramp up one of the most ambitious economic stimulus programs in U.S. history,” the Post said.

“Legal ambiguity and uncertain financing arrangements are continuing to curb U.S. banks’ enthusiasm for taking part" in the PPP program, "even as congressional leaders discuss expanding the program from $350 billion to $600 billion,” the FT reports. “Despite several statements of clarification from the U.S. Treasury and the SBA, regional and local bank executives say they are still awaiting key details they need to begin disbursing the emergency loans at scale.”

Visa and Mastercard “had planned to raise swipe fees on many merchants this year, and the changes in some cases would be hardest on small businesses,” the Wall Street Journal reports Thursday. “It is unclear if the fee changes, in the works for months, will be rolled out if the pandemic persists.”

Wall Street Journal

Insulated

Despite being one of “Europe’s most fragile banks, with high leverage and a sweeping overhaul of its operations under way,” Deutsche Bank “is also disproportionately exposed to the big European economy that seems to be suffering least from Covid-19. This helps explain why [the bank’s] stock hasn’t been punished as much as might be expected as investors factor a very sharp global recession into their forecasts.”

Financial Times

Pitching in

Top executives at HSBC and Standard Chartered said they will forgo cash bonuses this year and donate part of their salaries to charities supporting coronavirus victims. “HSBC said its chairman, Mark Tucker, would donate roughly £1.5 million— his entire fee for 2020 — to charities” in the U.K. and Hong Kong, while CEO Noel Quinn and CFO Ewen Stevenson will donate a quarter of their salaries in addition to waiving their cash bonuses, “which would have been worth about £1.4 million and £706,000, respectively.” Executives at Lloyds are also foregoing bonuses this year.

Noel Quinn, chief executive officer of HSBC, speaks during a panel discussion at the Bloomberg New Economy Forum in Beijing on Nov. 22, 2019.
Noel Quinn, chief executive officer of HSBC, speaks during a panel discussion at the Bloomberg New Economy Forum in Beijing on Nov. 22, 2019.

“The move comes as highly paid bank executives come under pressure to forgo some of their remuneration, at a time when many families and businesses are struggling with extreme economic hardship and the threat of unemployment,” the FT said.

Trouble Down Under

HSBC’s Australian bank told the country’s financial crime agency “that it may have broken anti-money laundering and counter-terrorism financing laws by failing to report transactions it facilitated with foreign banks and other institutions. A person familiar with the situation said that it was investigating thousands of financial transactions that it may not have reported to regulators, as mandated under law.”

Lenders face potential fines of up to A$21 million (£10.3 million) for each breach of the legislation, a regime that can lead to heavy penalties.”

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