Goldman still blames former banker for 1MDB; Morgan Stanley disappoints

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Miss for Morgan
Morgan Stanley failed to reach expectations on both earnings and revenue in the fourth quarter. The bank earned $1.5 billion, or 80 cents a share, compared to forecasts of $1.6 billion and 89 cents a share. Revenues dropped to $8.5 billion, down from $9.5 billion a year earlier and below estimates of $9.3 billion.

Yong Lim

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Mind the gap
Citigroup disclosed that female employees earn 29% less than their male counterparts, “an uncharacteristically blunt assessment of the pay gap between men and women in its global workforce.” The bank also said that among its American employees, people of color earn 7% less than whites. “The numbers are difficult,” said Sara Wechter, Citigroup’s global head of human resources. “We should obviously be at 100% parity, and that’s what we’re striving for.”

The House may roar
Rep. Maxine Waters, D-Calif., the new chair of the House Financial Services Committee, said one of her first orders of business will be to investigate Mick Mulvaney’s tenure as the former acting director of the Consumer Financial Protection Bureau. “Among other things, Ms. Waters said her committee would look at Mr. Mulvaney’s firing a panel of outside experts that advised the bureau on consumer issues and stripping its office of fair lending of enforcement and supervisory powers.” Wall Street Journal, American Banker

One of the panel’s newest members is Rep. Alexandria Ocasio-Cortez, D-N.Y., a critic of Wall Street banks. “While Waters is a well-known figure who has served on the committee for more than 20 years and developed a reputation for bipartisan dealmaking, Ocasio-Cortez’s legislative style is still unknown. Being repeatedly hauled before the Financial Services Committee could produce embarrassing headlines and lengthy investigations.”

Laying blame
Goldman Sachs CEO David Solomon blamed the 1MDB scandal in Malaysia on one of the firm’s former bankers, Tim Leissner, while insisting the bank itself did nothing wrong. “It is very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the Malaysian government,” Solomon said at his first earnings call with analysts. “For Leissner’s role in that fraud, we apologize to the Malaysian people.” Leissner, a former senior partner in Goldman’s Asian operations, has pleaded guilty to participating in the fraud.

The “well-orchestrated campaign by Goldman Sachs to discredit one of its former partners … reflects just how worried Goldman is about the criminal investigations” into the 1MDB scandal, which involved the theft of at least $2.7 billion, the New York Times says. “In recent presentations to American regulators and law enforcement authorities, Goldman executives and their lawyers have depicted Leissner … as a master con man, someone so sneaky that even the retired military intelligence officers who work for the bank couldn’t sniff him out. The bank’s hope is that by casting Mr. Leissner as a rogue employee, Goldman will reduce its legal and reputational liability.”

John Bogle dies
Vanguard Group founder John Bogle, “the fiercest advocate” American investors “may have ever had,” died Wednesday at the age of 89. The “crusader for investors’ rights for more than three decades … almost single-handedly made index funds a practical and popular option for institutional and individual investors alike.” Wall Street Journal, Financial Times, New York Times, Washington Post

Wall Street Journal

The cost of an education
Student debt has prevented “hundreds of thousands of young Americans from buying a home in recent years,” according to a Federal Reserve report released Wednesday.

It's all in the timing
Santander “should be deeply embarrassed” for pulling out of its agreement to hire former UBS banker Andrea Orcel as its next CEO after it came to light that it would have to pay more than $57 million to compensate him for money he would have lost by leaving UBS. “Balking at such a sum to hire Mr. Orcel is understandable, but only realizing the cost now is an astounding error.”

Writing it off
Regional bank executives are concerned about the flattening yield curve, but not particularly worried that it is signaling an impending recession.

Financial Times

Perspective
Robust fourth-quarter earnings reports from Goldman Sachs and Bank of America “proved that investors had radically underestimated both the health of the real economy, and the resilience of the banks that make their livings from it. The content and tone of the results was a world away” from December, when bank stock prices fell an average 14%. “December was a bad dream, we all freaked out at the same time,” said Brian Foran, an analyst at Autonomous Research. “Bank earnings are telling us that things are not great, but not about to tip into recession.”

Leaving
Bank of America is expected to announce Thursday that Diego De Giorgi, its head of global investment banking, is leaving the bank, just four months after the departure of his former boss Christian Meissner. He is expected to be replaced by Jack MacDonald, the head of its Palo Alto-based technology group, and Thomas Sheehan, a New York-based healthcare banker.

Quotable

“The time for accountability for his actions is about to begin.” — House Financial Services Committee Chairwoman Maxine Waters, D-Calif., about her plan to investigate the actions of former Consumer Financial Protection Bureau Acting Director Mick Mulvaney.