Lake a contender at JPM; U.S. probes Danish bank

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At the helm
The Federal Reserve Bank of San Francisco named Mary Daly, its research director, as its next president, succeeding John Williams, who is now head of the New York Fed. Daly “has focused her work on labor-market issues, a timely interest as Fed policy makers struggle to understand why a strong job market hasn’t spurred better wage gains and higher rates of inflation,” the Wall Street Journal says. Her appointment means that three of the 12 regional Fed banks are now led by women. Based on the Fed's rotation, which has San Francisco seated this year, Daly, who begins her term Oct. 1, will be a voting member of its monetary policy committee at the last two meetings this year. Wall Street Journal, New York Times, Washington Post, American Banker

Further consideration
Chief Financial Officer Marianne Lake has become a legitimate contender to become the next CEO at JPMorgan Chase. Lake’s “successive promotions [at the bank] had a habit of landing her right in the middle of the company’s toughest situations,” the Financial Times says in a profile. “But the experiences forged through crises put her in a strong position in the contest to succeed Jamie Dimon” when he decides to step down, possibly in five years.

“Marianne has a unique depth and breadth of knowledge at JPMorgan,” said Mike Mayo, banking analyst at Wells Fargo. “She has moved up the most in the last few years to become a contender.”

In a television appearance on Sunday, Dimon further distanced himself from negative comments he made last week about President Trump and said he would rate the president “pretty good” on his handling of the economy.

Separately, JPM is setting up an apprenticeship program in the U.K. to help aspiring executives at the bank earn their MBAs.

U.S. on the case
Danske Bank, which has been embroiled in a huge money laundering scandal involving Russian money allegedly flowing through its tiny Estonian branch, has attracted the attention of U.S. regulators. The Securities and Exchange Commission and the Justice and Treasury Departments have each opened investigations into the Danish bank’s activities. The actions were prompted by a whistleblower complaint filed with the SEC more than two years ago.

Separately, Credit Suisse has been censured by Switzerland’s financial regulator for anti-money laundering deficiencies.

Citi settles
Citigroup agreed to pay more than $12 million to settle Securities and Exchange Commission charges that it misled clients "who thought they were paying a premium to keep their trading activity shielded from interference by high-frequency traders." According to the SEC, the bank routed high-frequency trades through its CitiMatch “dark pool” without notifying the premium clients, whose own trades were sometimes routed to venues other than CitiMatch. The bank will pay $5.4 million in disgorgement interest and $6.5 million in penalties. Financial Times, New York Times

Wall Street Journal

Bad reputation
Wells Fargo concedes news of its past bad behavior took a toll on loan volume in its commercial lending businesses. Speaking at a conference on Friday, CFO John Shrewsberry blamed the decline on “lending discipline, strong capital markets that provide an alternative funding source and a competitive environment.” But he also “acknowledged for the first time that reputational issues may be hurting its commercial-lending business, not just the consumer business where the impact has long been obvious.”

Details, details
An investigation into Federal Housing Finance Agency Director Mel Watt has turned up more details about a subordinate’s claims of sexual harassment. The report says Watt “pursued a romantic relationship over several years” with the woman, Simone Grimes, “and denied her a raise and promotion after she rejected him.” Watt “has said he didn’t break the law and has called leaks to the media about the allegations politically motivated.” But the allegations won't stop Watt from testifying at an upcoming House hearing on "waste, fraud and abuse" at the FHFA.

No place like home
Technology firms “using algorithms built to scoop up large volumes of rental properties” have enabled big Wall Street investors “to buy large volumes of homes, shifting longstanding patterns in residential real estate.”

“The financial crisis created a catalyst for a lot of institutional capital and minds to tackle the opportunity, but technology is what really transformed this into a business,” says Drew Flahive, president of Amherst Residential, which owns and manages about 20,000 rental properties.

Financial Times

Changing of the guard
In another post-crisis retrospective, the paper looks at “how U.S. banks took over the financial world” while European banks “have been forced into a steady retreat.”

Despite a rash of reforms since the financial crisis, there is still a disconnect between what a bank’s accountants say are accurate balance sheets and capital ratios and what the market actually believes. “The same dissonance between accounting and market measures persists — especially in the U.K. and the eurozone,” writes City Editor Jonathan Ford. “Despite capital-bolstering measures, investors stubbornly refuse to believe that a book equity dollar is what it says on the tin.”

Tough questions
Cornell University professor Saule Omarova, one of the speakers testifying at the Senate Banking Committee’s hearings this week on financial technology, will likely “raise questions about whether the blending of big tech companies and finance is in the public interest.”

“If Amazon can see your bank data and assets, [what is to stop them from] selling you a loan at the maximum price they know you are able to pay?” Professor Omarova asks.

Climate-friendly loans
Dutch bank ING said it will start evaluating its $600 billion loan portfolio based on emissions reductions required by the Paris climate agreement. “The policy, the first of its kind for a big bank, will include putting pressure on clients whose businesses do not conform with the climate goals of the agreement,” the paper says.

“It was a two-horse race [between investment bank boss Daniel Pinto and consumer boss Gordon Smith]. Now there’s a third horse in the race.” — Mike Mayo, banking analyst at Wells Fargo, about CFO Marianne Lake’s chances of becoming the next CEO at JPMorgan Chase.

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Succession planning AML Penalties and fines Marianne Lake JPMorgan Chase Federal Reserve Bank of San Francisco