Receiving Wide Coverage ...
Goldman Faces Scrutiny for Malaysian Hire: Goldman Sachs hired the daughter of an ally of the Malaysian prime minister while it was seeking to do business with the government investment fund. The woman in question, Anis Jamaludin, worked for the bank for three months, though there are discrepancies as to the exact dates of employment. She was hired when the bank was seeking business from 1Malaysia Development Bhd while her father was a ruling-party politician and part of Malaysia’s U.S. envoy. The fund’s board did hire Goldman and set aside roughly $1.2 million for its advisory services. The bank has been investigating its actions related to the fund and the bank’s former Southeast Asia chairman Tim Leissner, who left in January a day after being put on leave. The investigation is part of a larger probe by "several jurisdictions" into the bank’s hiring of relatives of government officials and other people with connections to government. Leissner’s departure was separate from the probe in question and related to an unauthorized reference letter he sent. The fund has denied wrongdoing in the case. The investigation has also found that Jamaludin had to endure the same interview process as other candidates and received clearance from the bank’s legal and compliance departments. Nevertheless, Goldman helped raise money for 1MDB and made millions from the fund’s bond sales. Questions regarding the fund’s relationship with Malaysian prime minister Najib Razak, a friend of Jamaludin’s father, have complicated the matter.
Wall Street Journal
For the three big ratings firms, it’s almost as if the financial crisis never happened. Profits at Standard & Poor’s Ratings Services, Moody’s Investors Service and Fitch Ratings are approaching all-time highs, and together the three firms account for more than 95% of global bond ratings, which is nearly the same level as before 2008. Further highlighting their insulation from the negative effects of the financial crisis that they are said to have helped bring to fruition is the fact that they’ve had to pay for it less than their banking colleagues. A Moody’s unit agreed to a $130 million settlement with a California pension fund recently – pocket change compared to the billions paid by banks. Overall, the firms have managed to maintain most of their old way of doing things, despite calls from the government to reform them. Part of the problem, to some, is there’s no feasible way of forcing them to change given how vital they are to the global economy. The ratings agencies, meanwhile, maintain that they have diversified from the ratings business and amped up their compliance and risk programs.
Bangladesh Bank, the South Asian country’s central bank, has lost $100 million in a cyber-heist. In February, hackers transferred roughly $100 million from the central bank’s accounts with the New York Fed to bank accounts in the Philippines and Sri Lanka. Altogether, the criminals sent multiple requests adding up to $1 billion in funds, but only five requests were accepted. The heist took place on a Friday, the weekend in Bangladesh, and was executed with the correct bank codes. Fed officials said the transfer requests were fully authenticated and appeared to come from Bangladesh’s capital, Dhaka. The transfers were requested through Swift, the interbank messaging system, which has a multilayered authentication process. Bangladeshi officials believe the culprits strategically planned the weekend timing. Observers say the heist exposes the vulnerabilities present in emerging economies, which lack regulation and security systems.
The solution to the threat of big bank failures should not be to break them up, but to create an amendment to the country’s bankruptcy code to allow liquidation with the least amount of disruption to the economy, according to an op-ed. The op-ed calls for creating a “Chapter 14” bankruptcy, which would codify how to make big-bank failures a possibility without causing widespread economic problems. Through the bankruptcy process, the op-ed’s authors argue, Chapter 14 would contain the losses to shareholders and creditors and prevent them from spreading to other institutions. Regulators could initiate the process through a judicial hearing, after which the court would turn the bank’s long-term debt into equity. A new company would then assume the failed bank’s recapitalized balance sheet, while former shareholders and bondholders of the failed institution would have claims against the bank’s estate. The op-ed’s authors detail the feasibility of such a process by applying it to the case of Lehman Brothers.
Financial Times
Italy’s cleanup of the banking sector has hit an impasse as it waits for a crucial merger to receive the European Central Bank’s approval. The banks in question, Banca Popolare di Milano and Banco Popolare, are hoping to receive the regulator’s OK by next month. But failure to do so could put the country’s banking reform plan in jeopardy. The deal is a key test of Italian prime minister Matteo Renzi’s plan, which would lead to strategic mergers among the country’s 10 largest mutual banks. This merger, if it failed, would throw a harsh spotlight on others that have been proposed, making it all the more difficult for them to be successful.
New York Times
Troubled Chinese companies are looking to replace their debt to banks with stock in a new approach to managing China’s debt burden. But while the strategy benefits Chinese banks in the short-term, the plan appears to have many pitfalls that could cause major headaches down the road. The plan, which has already been put into play by one shipbuilding company, lets banks improve their balance sheets, since troubled loans are replaced by stock that holds some real value. The problem is banks will have much less incentive to shut down a troubled company if it holds stock in it. Consequently, the program may exacerbate issues related to overcapacity in the country, which could stymie economic growth.
Former Credit Suisse brokers are asking the Financial Industry Regulatory Authority to intervene in a conflict with the bank over unpaid bonus payments. The brokers in question formerly worked for Credit Suisse’s private bank division. When the unit was shut down last year, Credit Suisse brokered an agreement to allow 270 brokers to move to Wells Fargo, but many chose instead to go to UBS, Morgan Stanley and other banks. Because they turned down the Wells Fargo offer, Credit Suisse argues they voluntarily resigned, which would mean it is not required to pay out any accumulated deferred compensation. The brokers would normally be able to arbitrate the dispute through Finra, but the bank required the claims to go through the American Arbitration Association, formerly called the Judicial Arbitration and Mediation Service. Now, the brokers are demanding that Finra step in to take charge of the situation as the responsible regulator – but they may face an uphill battle. A decision in a U.S. appeals court allowed banks to waive Finra arbitration in favor of other venues.
Elsewhere ...
Quartz: While PayPal may have no intentions of converting into a bank-holding company anytime soon, that doesn’t mean it won’t buy one. At last month’s KBW Cards, Payments & Financial Technology Symposium, PayPal finance chief John Rainey said while PayPal didn’t want to become a bank itself, he “wouldn’t suggest that we are equally as leery of acquiring a bank or an issuer.” And that’s a big deal – because PayPal could afford to do that. The payments company has $1.4 billion in cash on hand, and buying a bank would help it to separate itself from its competitors. Buying a bank would allow PayPal to access avenues available to more traditional companies and could allow the company to provide a wider array of financial products. It could also help PayPal to build out its fledgling lending program, PayPal Credit, which the publication said exceeded $2 billion in volume last quarter.
