Wall Street Journal
JPMorgan Chase, Citigroup, Bank of America and other banks could take a hit to their second quarter profit from litigation charges and fines, as a Libor manipulation case revived earlier this week raised the possibility of liability for violation of antitrust laws. Such violations could require them to pay triple damages. But for now, it remains to be seen what, if any, penalties are incurred. Firms that choose to deal with the problem quickly could remain in what is already a bleak earnings environment.
A whistleblower at the center of the 2014 mortgage-selling scheme, that resulted in the $1.27 billion penalty against Bank of America that was overturned Monday, still gets to keep his $58 million bounty. When B of A decided to try to overturn the initial ruling, Edward O'Donnell "filed a separate, similar whistleblower lawsuit against the bank in June 2014" and was paid from a different settlement. Regulators and law enforcers are calling for bigger payouts and greater protections for whistleblowers, as they are key to identifying and tackling Wall Street misconduct and often lose their careers as a result.
Prosper said Tuesday it is increasing loan rates for its riskiest borrowers by an average of 0.29 percentage points, following a period of waning investor appetite. The online lender said in a blog post the move is "necessary for us to continue providing a compelling fixed-income product relative to the many alternatives available to our investor community." Its most creditworthy customers should not be affected, but, riskier borrowers face rate increases between 0.25 percentage points more to 1.42 percentage points more. Earlier this month Prosper also cut 28% of its staff and reshuffled its executives.
Wells Fargo issued lower financial targets Tuesday, underscoring challenges brought to the banking industry by low interest rates and regulatory pressure to hold more assets that can be quickly turned into cash. The new target to generate return on equity over the next two years is between 11% and 14%, compared to the target range set in 2014 of between 12% and 15%. The bank also cut guidance for return on assets to now range from 1.1% to 1.4%, compared to 1.3% to 1.6%.
This year's series of cyberheists via cross-border payment messaging system Swift is bringing financial institutions under pressure to tighten their cyber security systems and procedures, but doing so can only be so effective unless global counterparts take the same measures. Swift has 9,000 member institutions worldwide and moves more than $6 trillion daily. In the developed world, the larger companies now face "tens of thousands" of attacks each minute. Bank networks rely on trust between their participants. If Swift's members lose trust in the system and thereby lose trust in each other, it could lead them to exit the network, potentially leaving them with fewer global money moving choices with more costs.
In the U.K., banks could stick its customers with the bill for fraud on their accounts if a new proposal passes. Currently, banks foot the bill regardless of who's to blame. Under the proposal, individual or companies whose bank accounts are hacked as a result of their poor security could be frozen from banking services or excluded from the system that pays for fraud. The country's banks are in talks with the government, the Bank of England and spymasters at Government Communications Headquarters, the U.K.'s electronic eavesdropping and cyber security agency. The GCHQ is pushing for banks and other private sector companies to take a more active approach to cyber defense, believing they should urge their customers to improve their own standards for cybersecurity.
U.K. customers say banks are "failing to deliver fair and transparent services," mainly as a result of hidden charges and fees (they also indicated they don't understand these products), according to a survey by FIS Global of 10,000 consumers. The research showed customers have little trust in advice offered, transparency of pricing across products and accounts and overall reliability. The survey comes after the government issued a report warning that taxpayers face "serious risks" of future misselling scandals and urged the Financial Conduct Authority and Treasury to "do more to know how much mis-selling is happening now."
Bloomberg: Wall Street banks are making contingency plans to cut exposure to online consumer loans, in case the market further deteriorates, following the Lending Club saga. Firms like Credit Suisse and Deutsche Bank have said they're examining credit lines of institutional investors who buy loans from marketplace lending startups. So far, banks have funded billions of dollars through these credit lines to the loan buyers, but they want to avoid mistakes they made in the subprime crisis, waiting until it was too late to limit exposure to bad mortgage loans.