Fintech, bank conflict heats up; Deutsche plans bonus cuts

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Felix Rohatyn dies

Felix Rohatyn, a longtime managing director at Lazard Frères “who was one of America’s best-known investment bankers for decades and helped pull New York City back from the brink of financial ruin in the 1970s,” died Saturday at the age of 91, the Wall Street Journal reports

“For nearly two decades, from 1975 to 1993, as chairman of the state-appointed Municipal Assistance Corporation, Mr. Rohatyn had a say, often the final one, over taxes and spending in the nation’s largest city, a degree of influence for an unelected official that rankled some critics,” the New York Times comments. Wall Street Journal, Financial Times, New York Times

Wall Street Journal

Battling over customer data

Banks and financial technology companies are fighting “a war over access to customer financial data. Fintech companies — nonbank firms that use apps and other new technologies to provide financial services such as digital payments, loans and financial planning — say they need access to customers’ account information held by banks and other traditional financial companies. To protect their own turf, banks and brokerage firms have resisted. Banks cite security concerns for their moves to limit fintech firms’ access to their customer data,” the paper says.

At the same time, “tech companies’ and banks’ tussle over the future of finance may be getting a bit more intense. Technology companies are moving into retail banking by offering financial products under their name. In almost every case, though, there is a partner bank behind the tech firm," the paper continues. "As more of these fintech partnerships emerge, investors in both tech firms and banks will need to ask a lot of questions: Will the deposits be considered brokered? If they are, does that mean the tech company basically controls the relationship with the customer? Or, if they aren’t brokered, does the bank then pay more to the tech firm to bring in such stable funding?”

“Some of the most intense competition might not be between banks and technology companies but among banks for who gets these deposits. Several smaller and regional banks have been partners to tech firms.”

Enablers

JP Morgan Chase CEO James Dimon was one of several bankers who, “instead of injecting a dose of reality, spent years championing [WeWork co-founder and chairman Adam] Neumann and the company as they battled for the coveted IPO assignment,” which was later canceled, the paper reports. Indeed, “Mr. Neumann referred to JPMorgan’s Mr. Dimon as his personal banker. It was almost literal: JPMorgan led a $500 million credit line to Mr. Neumann and lent another $97 million in other forms of debt, largely mortgages with low rates on his many homes. Mr. Dimon once ordered his bank to mimic some of WeWork’s office designs after a tour of a WeWork with Mr. Neumann.”

But JPM and Dimon were not alone. “Bankers at Goldman Sachs referenced Mother Teresa and Bob Marley in its pitch presentation.”

Bottom feeder

Japanese financier Yoshitaka Kitao is making a big bet on Japanese regional banks, “one of the biggest and seemingly least attractive corners of world finance. Investors have shunned regional banks until recently for good reason. The regional banks tend to be centered in the aging and declining parts of the country. They are most exposed to negative interest rates, because their shortage of investment expertise makes it hard to find alternatives to traditional investments such as Japanese government bonds that yield little or nothing,” the paper says.

However, “Japan’s regional banks, which together have nearly $4 trillion in assets, have been on a share-price roll since August, gaining more than 20% in many instances.” Kitao, who said the “investment risk is low” because their shares had been beaten down so much, is “generating buzz with plans to unite regional banks into a loose confederation under the banner of his company, SBI Holdings.”

Financial Times

Scrooged?

Deutsche Bank “is considering a cut of up to 20% in its bonus pool as it looks to reduce costs by €1.3 billion this year. This would be a more radical cut than last year, when the pool shrank by 14% and it paid out just under €1.9 billion in bonuses.”

Under review

“The number of independent investigations ordered by U.K. regulators into financial institutions has risen for the first time in four years, driven by concerns around money-laundering and white-collar crime,” the paper reports. The Financial Conduct Authority and the Bank of England ordered 51 reports in the 2018-19 financial year, a 16% increase over the previous 12 months.

“The aggregate number of reports ordered has been gradually dropping off since the high of 140 in 2010-11 in the wake of the financial crisis but the most recent figures herald a halt to that decline. Concerns about controls against financial crime have been a particular focus, with 14 of the 51 reports relating to failings in this area.”

Risk managed

“The rhetorical fire and smoke” over loosened restrictions on large banks by U.S. regulators “have largely obscured a quiet, transformative change in banks’ risk management that makes such regulatory tailoring less critical,” writes Alexander Dill, the author of “Bank Regulation, Risk Management, and Compliance,” in an op-ed. “Before the crisis, risk officers were confined in siloed business lines, with little input on strategy. Now they have centralized, enterprise-wide roles, making comprehensive risk assessments and signing off on new products and services. They give advice on how to balance risk with returns and they regularly brief bank boards. These developments, and the meaningful protections they provide against future crises, promise to outlast the usual regulatory cycle.”

Quotable

“I am disgusted by racism and hate in any form. Any such behavior — explicit or veiled, deliberate or unconscious — is unacceptable and does not reflect who we are as a company and how we serve our clients and communities every day.” — JPMorgan Chase CEO Jamie Dimon in a memo to the bank’s U.S. staff and posted on its website following an article in the New York Times last week, which reported two black men — a JPM financial advisor and a prospective client —taped conversations that showed possible racism at the bank

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Fintech Customer data Regional banks Bonuses and incentives AML Risk management
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