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ICE buys mortgage tech firm Ellie Mae; Capital One fined $80 million for hack

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Rocketing upward

Quicken Loans parent Rocket Cos. “jumped nearly 20% Thursday after the lender scaled back its public offering i n the face of economic crosscurrents and despite the relative strength of the housing market,” the Washington Post reported. “The stock closed at $21.51, up 19.5%, after soaring as much as 26.1% in its New York Stock Exchange debut. The company had priced its shares at $18, well below the $20-to-$22 range expected, and put up 100 million shares instead of 150 million. Goldman Sachs and Morgan Stanley led the offering, which raised $1.8 billion.”

Landmark bet

Also in the mortgage industry, Intercontinental Exchange, the owner of the New York Stock Exchange, “said it would acquire mortgage-software firm Ellie Mae, a landmark bet by the exchange giant on the digitization of the U.S. mortgage industry,” the Wall Street Journal said. The deal between ICE and the private-equity firm Thoma Bravo, which acquired Ellie Mae last year for $3.7 billion in cash, “is valued at about $11 billion, including $9.25 billion in newly issued debt and $1.75 billion in stock.”

“Ellie Mae’s technology has been used to help automate the closing of millions of home loans. The firm handles the technology that underpins the entire home-loan origination process, and its services are used in particular by loan officers who work at nonbank mortgage lenders. Ellie Mae’s revenue has grown rapidly since the Thoma Bravo acquisition last year, in part because the coronavirus pandemic accelerated the use of its digital tools, ICE chairman and Chief Executive Jeffrey Sprecher told analysts Thursday.”

The Ellie Mac acquisition is “the largest deal in [ICE’s] 20-year history,” the Financial Times said. The deal “marks a decisive pivot for the Atlanta-based company, which has become a $52 billion financial markets juggernaut by running some of the world’s biggest exchanges, clearing houses and index providers.”

Hacked, then fined

The Office of the Comptroller of the Currency fined Capital One $80 million over a 2019 hack “that compromised the personal information of about 106 million card customers and applicants, one of the largest-ever data breaches of a big bank,” the Journal reported. The OCC said the bank “failed ‘to establish effective risk assessment processes’ before transferring information-technology operations to the public cloud and ‘to correct the deficiencies in a timely manner.’”

“The bank said controls it had in place before the breach helped it to secure customer information before it could be used and helped authorities catch the alleged hacker. The OCC said its consent order took into account the bank’s customer notification and remediation efforts.”

“The data breach exposed names, addresses, phone numbers, self-reported income, credit scores and payment history, as well as some people’s Social Security numbers,” the FT said. “It has become a cautionary tale for banks migrating their data from their own physical IT to the kind of virtual clouds that the Capital One data was hacked from.”

“The settlements with the OCC and the Federal Reserve Board came a little more than a year after the arrest of a former Amazon Web Services employee for allegedly hacking Capital One’s customer data,” American Banker’s Kevin Wack writes. “Capital One was using Amazon Web Services, a subsidiary of the Seattle-based tech giant that offers cloud computing services.”

Debt decline

U.S. household debt “has declined for the first time since 2014, driven by a steep fall in credit card balances as consumer spending plunged during the coronavirus lockdown,” the FT reported. “Consumer debt balances amounted to $14.27 trillion at the end of June, a 0.2% drop from March, according to figures released by the Federal Reserve Bank of New York on Thursday.”

“The decline included a $76 billion contraction in credit card balances — the sharpest decline on record.” Economists at the New York Fed attributed the slide to “the sharp declines in consumer spending due to the Covid-19 pandemic and related social distancing orders.”

“Whether these trends continue in future quarters will depend largely on a number of variables, including the trajectory and severity of the pandemic, the extent of further government aid efforts and payment relief by lenders,” American Banker’s Laura Alix writes.

Wall Street Journal

Bribery fine

Consumer lender World Acceptance Corp. “agreed to pay $21.7 million to resolve claims that a former subsidiary in Mexico paid millions in bribes to that country’s government and union officials, the U.S. Securities and Exchange Commission said. The former subsidiary, WAC de Mexico S.A. de C.V., paid more than $4 million in bribes in an effort to make loans to government employees and ensure they were repaid on time, according to the SEC. The bribes were deposited into bank accounts linked to the Mexican officials and distributed by an intermediary in the form of large bags of cash.”

Restated

Goldman Sachs “restated its second-quarter earnings lower Friday after reaching a $3.9 billion settlement with the government of Malaysia to resolve” their dispute over the firm’s involvement in the 1MDB fund scandal. “That settlement, reached last month just after the quarter’s end, reduced the bank’s earnings by $2 billion to $373 million, or 53 cents a share. Previously it had reported profits of $2.4 billion, or $6.26 per share.”

Cause for concern?

“Banks appear relatively sanguine” about potential losses on their commercial mortgage portfolios. “Their allowances for those loans are about one-third of the Federal Reserve’s forecast losses in the 2020 stress test. In consumer loans, banks’ allowances are now just under two-thirds of the Fed’s forecast loss rate.”

“Nonetheless, with more retailers going bankrupt seemingly every week, and the future of office work up in the air, commercial real estate is something bank shareholders will need to keep watching very closely.”

Washington Post

Ho hum

The Federal Reserve’s $600 billion Main Street lending facility “had covered less than $77 million in loans to only eight companies near the end of July, further revealing how little reach the program has had, even as millions of business vie for survival. Of the eight companies, six are in Florida and received loans issued by the City National Bank of Florida.”

“Struggling businesses say the terms are too onerous and can’t practically serve as a lifeboat in a time of such economic distress. Thousands of banks are eligible to sign up, but many of the country’s largest firms did not sign on initially. None of the loans included in Thursday’s report were issued by major banks.”

“Though the Fed has said the interest on behalf of lenders is ‘substantial,’ bankers have reported that customers are not clamoring for the loans,” American Banker’s Hannah Lang writes. “One reason is that many smaller businesses don’t qualify.”

Quotable

“Protections afforded to American consumers through the Cares Act have prevented large-scale delinquency from appearing on credit reports and damaging future credit access. However, thesetemporary relief measures may also mask the very real financial challenges that Americans may be experiencing as a result of the Covid-19 pandemic and the subsequent economic slowdown.” — Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed, which reported a slight decline in household debt, the first since 2014.

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