Morgan Stanley fined; German giants regroup after merger fails

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Fined for blindsiding
Morgan Stanley has agreed to pay $150 million to the state of California to settle charges that it misled investors, including two of the state’s biggest pension funds, about the risks involved in mortgage-backed securities it sold them prior to the 2008 financial crisis. “Morgan Stanley lied about the risk of its products and put profits over teachers and public employees who relied on its advice,” Attorney General Xavier Becerra said Thursday. “Today’s settlement holds Morgan Stanley accountable for misleading Californians who were unfairly blindsided.” Morgan Stanley denied the charges. Wall Street Journal, New York Times

Where do we go from here?
The failed merger between Deutsche Bank and Commerzbank “has opened the door to what the German government was trying to avoid in the first place: a foreign takeover of its banks. Foreign competitors have already started circling Commerzbank, the strongest and simplest to absorb of the two.” Italy’s UniCredit and Holland’s ING Groep “have informally expressed potential interest in the lender, whose client portfolio of medium-size German companies is highly valued.”

“For Deutsche the answer is much less certain than for Commerzbank. Now that he has hit his cost targets, [CEO Christian] Sewing needs above all to show a turn in revenue. This is much, much harder.”

“Going back to business as usual does not seem to be a credible option” for either bank, the FT writes.

Meanwhile, DB put out their earnings report that showed deepening losses at the bank.

AML news
The Federal Reserve ordered the New York branch of Sumitomo Mitsui Banking Corp., one of Japan’s largest banks, to beef up its compliance with anti-money-laundering controls. The Fed cited “lapses in oversight it had identified in a recent examination.” The bank must submit a plan “to ensure its leadership is aware of compliance problems, and that the bank proactively identifies and tracks anti-money-laundering risks.” Wall Street Journal, American Banker

Swedbank said it is setting up a financial crime unit as it “struggles to get on top of a money laundering scandal that has wiped off more than a quarter of its market capitalization. The lender admitted on Thursday to shortcomings in how it dealt with money laundering after claims that billions of dollars of risky money from Russia and elsewhere flowed through its accounts led to probes by U.S., Swedish and Baltic regulators.”

Wall Street Journal

Shell game
iFinex, the Hong Kong-based cryptocurrency exchange that owns Tether, the popular digital coin that the company says is backed by real dollars, raided its cash reserves to cover up $850 million that went missing, the New York State Attorney General’s office charged Thursday. Attorney General Letitia James said the firm “has been commingling client and corporate funds to cover up the missing funds, which occurred in mid-2018 and hadn’t been disclosed publicly.”

Financial Times

Reputation at risk
Goldman Sachs’ “longstanding image as the most connected bank in Washington” will be tested as the Justice Department considers criminal charges against the bank for its role in the 1MDB scandal.

New York Times

Cash accepted
Sweetgreen, the New York salad chain that announced back in 2016 that it would no longer accept cash for payment, has rescinded that policy “amid a growing backlash [against] ‘cashless’ stores around the country.” “Ultimately, we have realized that while being cashless has advantages, today it is not the right solution to fulfill our mission,” the company said. “Critics say cashless stores discriminate against people without access to bank accounts or credit cards, or who simply prefer to pay with cash.”

Quotable

“I expect Commerzbank will be bought by another European bank, and it’s a question of ‘when’ rather than ‘if.’— Filippo Alloatti, a senior credit analyst at Hermes Investment Management, about the German bank’s future after merger discussions with Deutsche Bank collapsed.

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