Goldman in settlement talks with DOJ; Congress members ask JPM about equality

Editor's note: Morning Scan will publish next on Jan. 6, 2020. Happy New Year from all of us at American Banker and SourceMedia.

Receiving Wide Coverage ...

1MDB settlement talks

Goldman Sachs is in talks with the U.S. government to pay a fine of “just under $2 billion” in the 1MDB Malaysian corruption scandal, the Wall Street Journal reports. The bank would also “admit guilt and agree to continuing oversight of its compliance procedures in order to resolve” the matter, which “has weighed on Goldman’s stock price.” The Justice Department alleges that Goldman “ignored red flags while billions of dollars were looted” from the fund. The settlement deal is between the department and a Goldman subsidiary in Asia — "not the parent company.”

However, “the settlement wouldn’t resolve an investigation by authorities in Malaysia, which is seeking billions of dollars from Goldman,” the paper says. It would also put the bank under “new, tighter oversight [that] would keep the bank under the shadow of a scandal that its chief executive, David Solomon, is eager to move past.”

“A separate fine paid to the government of Malaysia and other regulatory agencies could raise the total financial penalty to more than $2 billion,” the New York Times reports. “It’s possible the settlement could be completed by the end of January.”

New BoE head

Andrew Bailey, the head of the U.K.’s Financial Conduct Authority, the country’s top bank regulator, was named the next governor of the Bank of England, succeeding Mark Carney, who has led the bank since 2013. Bailey assumes the post in March. Wall Street Journal, Financial Times, New York Times

Separately, the Federal Reserve and the Bank of England “are scrutinizing their broadcast feeds for potential weak spots after the revelation that some traders and hedge funds may have been paying for early audio access to the Bank of England’s press conferences. The BoE has referred itself to regulators after learning that specialized market news providers were disseminating audio files of policymakers’ statements to customers up to 10 seconds before live comments were broadcast on television or internet streams — a long head start that potentially opens up lucrative trading opportunities.” The Fed said it is reviewing how its officials’ comments are broadcast.

Financial Times

Happy together

Activist investor ValueAct Capital said it “has extended its information sharing agreement with Citigroup through the end of 2021," but "does not have immediate plans to take a board seat at the bank," the paper says. “We have been very impressed with [CEO] Mike Corbat and the entire management team ... Citi remains the top position in the fund and we have strong conviction in its long-term potential,” said Mason Morfit, ValueAct’s president and chief investment officer. Dylan Haggart, the ValueAct partner who leads the Citigroup investments, “told the FT that because the current relationship has worked well, ValueAct feels a board seat is not needed to promote changes.”

Nevertheless, the firm is making its presence felt. “Since ValueAct and Citi entered the agreement in January, three of the four most senior management positions at the bank have changed hands,” including Jane Fraser, who was named president of the bank as well as head of its consumer bank, “marking her as the leading candidate to succeed” Corbat.

New York Times

Lawmakers step in

Seven Democrat lawmakers, five senators and two House members, have asked JPMorgan Chase CEO Jamie Dimon “to list steps the bank is taking to combat discrimination against black customers and employees following a New York Times report about racism at some of the bank’s branches in Arizona. In two separate letters to Dimon, “which were also sent to regulators, the lawmakers asked whether the bank planned to change its hiring, lending and other practices to ensure it is treating minorities fairly. The senators asked Mr. Dimon to provide a list of cases in which regulators have penalized the bank for violating fair lending and employment laws over the past decade.” The House members “asked for a breakdown of how many black financial advisors Chase employed in each of its branches.”

Elsewhere

Appearance forthcoming

Maxine Waters, the chair of the House Financial Services Committee, said Wells Fargo’s board of directors “will be called to testify before Congress about the bank’s numerous scandals sometime in 2020,” Reuters reports. “We’re going to get some of their board members up here, and see what kind of responsibilities their board members are taking for the management of Wells Fargo,” the California Democrat said. “We’re going to have hearings, absolutely.”

“Waters added that she remains convinced that Wells is too big to be properly managed and should be broken up,” Reuters says.

Impairment charge

Spain’s BBVA “will book an impairment charge of $1.5 billion in the United States in the fourth quarter following a decline in interest rates and an economic slowdown in the country,” Reuters says. “It added that the negative adjustment to the value of the goodwill in its U.S. unit would result in lower than expected future profits compared to previous estimates. The U.S. accounts for around 10% of the bank’s earnings. Net profit in the country in the first nine months fell 17% from the same period a year ago.”

Quotable

“We’re going to focus especially on Wells Fargo. There’s a new CEO there, but I think the culture of Wells Fargo has developed in such a way that it’s going to be very difficult for this new CEO to get his arms around it.” — Maxine Waters, the chair of the House Financial Services Committee, who said the panel plans to call the bank’s board of directors to testify next year