Flint out at HSBC; Bair: Keep Congress out of CECL

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Out like Flint
John Flint, who was appointed CEO of HSBC only 18 months ago, is stepping down “by mutual agreement with the board.” He will be succeeded on an interim basis by Noel Quinn, head of the bank’s global commercial banking unit, until a permanent replacement is named.

“The surprise announcement came 18 months after Mr. Flint was elevated to the CEO role, as the top choice of the board under its then newly appointed chairman, Mark Tucker. Mr. Flint was regarded as a safe choice because of his decades-long career at the bank, and he made few changes to the bank’s strategy during his tenure. But his low-key style frustrated some, according to some people within the bank, and the board decided he had to go for HSBC to keep up and get ahead of business conditions and world events.” Wall Street Journal, Financial Times, New York Times

The bank “plans to slash thousands of jobs and slow investment spending” following Flint’s “surprise ouster. Up to 2% of the bank’s 237,685 employees could lose their jobs, a bank executive said Monday, as HSBC flagged a worsening outlook for the global economy in its second-quarter results.”

Wall Street Journal

Battle for speed
Big banks are fighting an effort by the Federal Reserve to “update its payments system to process transactions almost instantly” that the banks fear “could derail a private network they have developed.”

“The banks say an updated Fed system could delay widespread adoption of instant payments because thousands of financial institutions might wait for the central bank to roll out its new technology instead of connecting to the existing private option now. The Fed has been exploring the question of speeding up the payments system since at least 2013.”

Acid test
The Capital One hack “is an unprecedented test” for its founder Richard Fairbank, “who has largely stayed out of the spotlight” since becoming CEO 25 years ago and expanding it into the nation’s fifth-biggest credit-card issuer.”

“Mr. Fairbank and his top executives had long developed a game plan for a big hack, studying what he saw as weaknesses in responses from other banks and companies, said people familiar with the matter. After Capital One was hacked, he pushed to move quickly to disclose what the bank could. He carefully crafted, editing several times, personal apologies to customers and employees.”

The woman allegedly behind the “largest-ever bank-data heists appeared to have exploited a vulnerability in the cloud that security experts have warned about for years.” Paige A. Thompson, a former employee at Amazon.com’s cloud-computing unit, “was allegedly able to find an opening in Capital One’s systems and exploit a weakness in some misconfigured networks. Security professionals for years have warned about that gap … and suggest she used to trick a system in the cloud to uncover the sensitive credentials she needed to access the vast number of customer records.”

Boom rush
"U.S. banks are cashing in on a public-debt boom among oil-rich Persian Gulf nations, muscling into lending territory long dominated by rivals."

Financial Times

See you, raise you
Wells Fargo raised its estimate for litigation costs to $3.9 billion “as the bank continues to count the costs of the fallout related to the fake accounts scandal in the U.S. from nearly three years ago. That is up from the $3.1 billion reported on March 30 and a $1.2 billion increase from the provision earmarked at the end of last December.”

No time like the present
Former Federal Deposit Insurance Corp. chairman Sheila Bair doesn’t like the fact that the banking industry is lobbying Congress to delay the account rule that would force banks to recognize immediately “current expected credit losses,” or CECL.

Trying to draw elected officials into this debate is ill-advised,” she writes in an op-ed. “The process of setting accounting rules is, by design, insulated from the politics. The Financial Accounting Standards Board is an independent, non-profit organization of leading, private accounting experts, recognized by the Securities and Exchange Commission as the accounting standard setter for publicly traded companies. FASB spent many years asking for public and industry input before finalizing CECL in 2016. Transitioning to the new rule will obviously require banks to add to their loan loss reserves. Now is a good time to do so, while banks are profitable and the U.S. economy is strong.”

Show of support
Deutsche Bank chairman Paul Achleitner has invested almost €1 million in the bank, “a show of confidence in the struggling German lender despite the radical restructuring launched last month.” The buy “follows chief executive Christian Sewing’s decision to spend up to a quarter of his base salary on Deutsche shares.”

“As well as being a show of faith in his employer, Mr. Achleitner’s move suggests the bank has no plans to deepen its overhaul. His stock purchase is his first since he took on the role of chairman in 2012.”

And the winner is …
KKR beat out several other bidders by offering than €600 million for German payments company Heidelpay, “a fresh sign of investor appetite for companies that offer digital alternatives to cash. A structural shift towards digital and online payments instead of cash has driven up valuations and encouraged companies to combine in search of greater scale and geographic reach.” Heidelpay enables its more than 30,000 merchant clients to accept online and mobile payments.

Hard times
Barclays is cutting its first-half bonus pool by 23%, to £456 million from £593m in the same period last year, as CEO Jes Staley “exerts a tighter grip on pay in a push to hit the bank’s profitability target,” “reflecting a tougher approach to pay for its investment bankers. It was the lowest amount allocated to the bonus pool in a first half since 2016, when Mr. Staley started rebuilding the investment bank following a push by his predecessor to scale back the unit.”

Quotable

He is a visionary. Without that vision, there’s a level of uncertainty as to whether the bank can continue being a trailblazer with respect to technology and credit.” — Warren Kornfeld, a credit analyst at Moody’s Investors Service, about Capital One CEO Richard Fairbank.

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