Receiving Wide Coverage ...
Round Two: Congress isn't through with Wells Fargo CEO John Stumpf just yet. Following his pummeling before the Senate Banking Committee Tuesday, Stumpf has been asked to testify before the House Financial Services Committee next week on the bank's phony accounts scandal.
The New York Times' Gretchen Morgenson says Wells' recent behavior was no surprise to attorneys who battled the bank in mortgage foreclosure cases after the housing meltdown. "During the financial crisis, Wells Fargo was at a remove from Wall Street and was not a big player in creating toxic and complex mortgage securities that were engineered to fail," she writes. "But the bank's ability to emerge from the crisis with a relatively good reputation is something of a mystery to anyone who paid attention to its aggressive foreclosure activities. There were enough problematic foreclosure cases involving Wells Fargo moving through the courts that the bank's dubious practices seemed as pervasive then as the questionable account-opening scheme does now. And some of the elements of both scandals — improper fees and forgeries — are the same." There was one difference, though, she says. While Wells has apologized for opening fake accounts, "lawyers who represented troubled borrowers say no such apology came from Mr. Stumpf during the foreclosure mess."
Federal Reserve Chair Janet Yellen addressed the Wells Fargo scandal during her press conference after the Fed voted to hold interest rates unchanged. She said she doesn't believe the scandal means the bank is "too big to manage," but the Fed expects banks to have "robust systems" of risk management, auditing and compliance that should weed out illegal sales practices like those Wells engaged in. "We have been distressed to see banking organizations responding when a particular problem arises," rather than ensuring "that employees are always acting in a legal and ethical manner" in the first place.
Both the Wall Street Journal and the Financial Times observed that turning banks into supposedly safe utility-like institutions doesn't always work out the way intended, as the example of Wells Fargo has shown. "Wells Fargo has been among the most respected financial firms and it focuses on businesses that regulators say they like — retail banking rather than capital markets," the WSJ editorial page noted. "Now we see that even bread-and-butter retail can lead to political retaliation as Senators call for Mr. Stumpf to resign and demand a criminal investigation. Mr. Stumpf, who will be lucky to survive as CEO, is learning the hard way that as long as banks remain public utilities they are a lousy business."
John Gapper, the FT's chief business commentator, says the bank's image as the "king of cross-sell" that only sells customers what they need, "not what we want to sell them," was simply "baloney." "The old lesson applies: if something seems too good to be true, it probably is."
MJeanwhile a fight has erupted over who deserves credit for uncovering the fraud.
Fab four: The paper lists four fintech companies likely to prosper in this environment: Juvo, a San Francisco-based company that provides credit to mobile phone subscribers in emerging markets; Kubo Financiero, a Mexican peer-to-peer lender; iZettle, a Stockholm-based payment processor that enables small businesses to process digital payments through a smartphone app; and Monetas, a Swiss-based company that uses blockchain technology to provide a digital wallet that allows customers to transfer money and pay for goods without a bank account.
New York Times
Who needs banks?: Cellphones are likely to displace banks as financial services providers in the developing world, according to a report from the McKinsey Global Institute. "Developing nations — and to a lesser extent developed economies like the United States — lose enormous amounts of economic potential from the continuing reliance on cash and the difficulty many businesses and individuals encounter when trying to gain access to the financial system," the Times said. "The mobile phone, however, has provided a new and cheaper way to provide basic financial services to nearly everyone in the developing world." The paper noted a "growing number of start-ups are already providing financial services through cellphones, often without a bank being involved," adding that 90% of people in the developing world will have a mobile phone in four years, up from 80% now.