Goldman’s green goal; Biggest U.K. banks ace stress test

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1MDB deal

The Securities and Exchange Commission settled foreign corruption charges against former Goldman Sachs executive Tim Leissner for his involvement in Malaysia’s multibillion-dollar 1MDB corruption scandal. The agency permanently barred Leissner from the securities industry and ordered him to disgorge $43.7 million he received for allegedly helping to “facilitate a bribery scheme involving high-ranking government officials in Malaysia and Abu Dhabi,” Reuters reports.

“The claims raised by the commission are largely similar to the accusations brought by prosecutors in Brooklyn, where Mr. Leissner pleaded guilty in August 2018,” the New York Times says. “Prosecutors said Mr. Leissner helped loot funds from a series of bonds that Goldman Sachs helped the fund sell.”

First move

Iqbal Khan, the new co-head of global wealth management at UBS, “plans to break up the Swiss bank’s dedicated unit for the ultra-wealthy, in an overhaul designed to increase higher-margin lending to some of the world’s biggest family offices. At the core of the shift is the belief that dividing clients into brackets based solely on the overall value of their assets, rather than how they deploy them, is no longer relevant,” the paper says.

“The move marks an early declaration of intent from Mr. Khan, who joined UBS amid a swirl of controversy from its arch rival Credit Suisse,” the paper says, including charges that his former employer spied on him before he defected to UBS. “UBS chief executive Sergio Ermotti has given him the task of reviving the fortunes of the $2.5 trillion wealth management business. Though still the largest wealth manager in the world, UBS has been dogged by unimpressive returns in the business in recent quarters.”

Meanwhile, Credit Suisse “is looking into a report by a Swiss newspaper that its then-human resources boss was followed by private detectives in February,” Reuters reports. “The detailed report in the conservative Neue Zuercher Zeitung (NZZ), a Swiss newspaper widely read in the financial industry, suggests the surveillance of former wealth management boss Iqbal Khan, which shook the Swiss financial sector and damaged the bank’s reputation, may not be an isolated incident as Credit Suisse has said. The NZZ cited documents and photographs that it said arose from the surveillance of former human resources head Peter Goerke in February, just before he left Credit Suisse’s management board to become a senior adviser at the bank. The bank said it would carry out both an internal and independent assessment of the NZZ allegations.”

Wall Street Journal

Left behind

Fintech startups are one of the few groups that have failed to rise in a stock market that has lifted most boats. “It’s surprising, because fintech seems so hot,” the paper says. “Whether it’s blockchain or mobile banking, everybody wants a piece of fintech.” Yet, among the seven such companies that have gone public since 2014, shares of five of them — LendingClub, On Deck Capital, GreenSky, Virtu Financial and Zuora — are down this year. “Moreover, they have been dragging on portfolios since their respective launches, down anywhere from 28% for Zuora to 85% for On Deck since their first public trades.”

“Essentially, these are companies that are more ‘fin’ than ‘tech,’” the paper notes. “Investors have separated companies that are basically financial-services firms — that need capital to operate—from ones that just rely on a services model, like Square.”

Financial Times

Goldman addresses climate change

Goldman Sachs will “target $750 billion of financing, investing and advisory activity to nine areas that focus on climate transition and inclusive growth” over the next 10 years, CEO David Solomon announced in an op-ed. “There is not only an urgent need to act, but also a powerful business and investing case to do so,” he wrote. “That gives me hope for what we can achieve and conviction that financial institutions can play a critical role.”

“Looking ahead, the needs of our clients will increasingly be defined by sustainable growth. Our firm’s long-term financial success, the stability of the global economy and society’s overall wellbeing all depend on it.”

Goldman also “unveiled a Blackstone-like alternative investments group, previewing a key element of the strategic plan to be presented at the company’s much-anticipated investor day next month," the paper says. "The alternatives platform will cover everything from the private equity, infrastructure and debt investments offered by Goldman’s merchant bank to the partnerships, co-investments and funds offered through Goldman’s investment management arm.”

Passing grades

For the third straight year, all seven of the U.K.’s biggest banks passed the Bank of England’s stress test, indicating they “would be able to withstand an economic shock more severe than a disorderly Brexit coupled with a global trade war. The BoE found that Britain’s banks would be able to keep lending to consumers and businesses even in the event of a major economic crisis, while also continuing to pay billions of pounds in fines to address misconduct,” the paper says.

“The test shows the U.K. banking system would be resilient to deep simultaneous recessions in the U.K. and global economies that are more severe overall than the global financial crisis,” the BoE said in a summary of the results. The central bank also announced that it was “tweaking capital requirements for banks by doubling the size of the countercyclical buffer or rainy-day fund from 1% of risk weighted assets to 2%. The bank said that increasing the buffer would allow banks to absorb £23 billion of losses without cutting back on lending.”

Battered

Australian regulators imposed an additional A$500 million ($345 million) capital penalty on Westpac for making “international payments that may have facilitated child exploitation” and said they were was investigating the bank “under new laws aimed at holding individual executives responsible for wrongdoing.” A regulator “also initiated civil proceedings against National Australia Bank over allegations the bank charged fees to customers without providing any service. NAB has set aside A$2 billion to cover related remediation fees.”

“The actions on Tuesday by the prudential regulator Apra and corporate watchdog Asic follow a bruising year for Australia’s finance industry, which is mired in scandal in the wake of a year-long Royal Commission inquiry. The commission highlighted how some banks, insurers and pension funds ripped off consumers and lied to regulators.”

Quotable

Profitability will always matter — capital must be deployed to those opportunities that have the greatest potential for success, and we must generate strong returns on invested capital to serve those saving for retirement. But finance must also address climate transition and inclusive growth while achieving and sustaining those returns.” — Goldman Sachs CEO David Solomon, announcing a $750 billion initiative by the bank to fight climate change

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Fintech Climate change ESG Stress tests Penalties and fines David Solomon Goldman Sachs
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