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JPMorgan, Citi profits fuel optimism; Fincen warns on unemployment fraud

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Earnings

Three big banks are out with third-quarter earnings results this morning: Bank of America (profit down 16%), PNC and U.S. Bancorp. Wells Fargo is scheduled to release its 3Q report Wednesday, too.

Goldman Sachs reported, too, nearly doubling profits from a year ago.

Receiving Wide Coverage ...

Cautious optimism

Third-quarter results at JPMorgan Chase and Citigroup “show that businesses and consumers held up surprisingly well in the months since the pandemic plunged the U.S. into recession,” the Wall Street Journal said. “But executives said they haven’t yet changed their views that significant losses are looming in the future. They continue to hold large reserves for potential losses and predicted that next year unemployment would remain high and more customers could start defaulting on their loans.”

Still, the results “fuel hopes of a nascent economic recovery even as the country’s new Covid-19 cases hover near record levels,” the Financial Times said. “JPMorgan Chase and Citigroup both made more than twice as much money in the third quarter of the year as they did in the three months to the end of June, as loan loss charges at both banks plummeted from record levels and trading revenues surged.”

Despite Citi’s better-than-expected results, its outgoing CEO “came under fire on Tuesday for mistakes that have led to regulatory penalties, with analysts questioning his pay and why he is not leaving immediately in a conference call to discuss quarterly results,” Reuters reported. “In unusually direct exchanges, analysts pressed Chief Executive Mike Corbat to explain what management is doing to fix technical and operational problems that have plagued Citigroup for years and led the bank to erroneously send $900 million of its own funds to Revlon creditors in August. That blunder led to costly litigation between Citigroup and the recipients, as well as regulatory consent orders, a $400-million penalty and lots of embarrassment.”

“Several analysts asked why Corbat did not make more progress in overhauling creaky technology or generating better returns for shareholders during his tenure. They also criticized what they described as a lack of accountability, noting that executive compensation should be better tied to risk management and shareholder returns.”

But Citi executive provided few details on “how much the company expects to spend to fix risk management and internal control issues, how long the overhaul will take and whether it will entail sweeping changes in Citi’s business model,” American Banker’s Allissa Kline reports.

Meanwhile, JPMorgan Chase CEO Jamie Dimon said the bank “is forging ahead with plans to build a mammoth new headquarters in New York despite the coronavirus pandemic casting serious doubt on the future of office buildings. Slated to open in 2024, for a price tag of as much as $3 billion, the building at 270 Park Avenue is to house about 14,000 employees. At 1,425 feet, it would be the second-tallest office building in Manhattan behind One World Trade Center, nearly 200 feet higher than the Empire State Building and 225 feet above the nearby Bank of America Tower.”

“We’re building that headquarters for 50 years! It is not a short-term decision,” Dimon said.

Money man

Credit Suisse hired Bank of America’s former head of corporate and investment banking Christian Meissner “to head a new unit connecting its wealthiest clients with its investment bank,” the Journal reported. “Credit Suisse said Mr. Meissner will start later this month as co-head of international wealth-management investment banking advisory and vice chairman of investment banking.”

“The hire comes as competition has stiffened to [attract] bank billionaire entrepreneurs and wealthy families, a longtime specialty of Credit Suisse and larger rival UBS. Both banks have said the world’s rich want more access to private-market investments and bespoke financing, and have been knitting together parts of their wealth-management and investment-banking units to tap the demand.”

“The logic for the new position is to better service wealthy entrepreneurs that are falling between the cracks of the investment bank, where corporates and private equity are prioritized, and the wealth management unit, where the expertise does not exist to cross-sell products effectively,” the FT said.

Wall Street Journal

Red flags

The Treasury Department’s Financial Crimes Enforcement Network “issued an advisory Tuesday alerting banks to red flags that could indicate unemployment insurance fraud.” Fincen said “unemployment claims, which have surged during the coronavirus pandemic, are a prime target for fraudsters and amplify a compliance risk for financial institutions.”

“Pandemic-related unemployment fraud could include the use of fake or stolen identities, misrepresentation of income, false claims of having worked for a legitimate company or, in some cases, for a fictitious one, using falsified employee and wage records, FinCEN said. Schemes also could involve collusion between employers and employees, in which a worker receives unemployment payments as the employer continues to pay the person a reduced wage under the table.”

Delphic Joe

“Fifteen years ago, Joe Biden defended credit-card companies during a testy Senate exchange with Elizabeth Warren over legislation curtailing consumers’ ability to shed their debts in bankruptcy. Now, he is edging left on a range of issues from student debt to stock buybacks, leaving both progressives and Wall Street Democrats guessing whose side of the financial-regulation fight he is on.”

“All that makes this crucial area of policy even harder to parse. Advocates on all sides of the debate can see elements of Biden’s record that give them both comfort and concern.”

Quotable

“The financial systems that are set up to monitor fraud in this current environment are being overloaded.” — Raymond Dookhie, a managing director at the compliance advisory firm K2 Intelligence, after the Financial Crimes Enforcement Network warned banks about the increased risk of unemployment insurance fraud.

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