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Wall Street’s Bonus Bummer: 2015 was a disappointing year for Wall Street employees expecting bigger bonuses. The average bonus paid in the securities industry dropped to $146,200, its lowest level since 2012 and 9% off the previous year's average, according to a report from New York State Comptroller Thomas P. DiNapoli. The bonus pool itself contracted 6%, to $25 billion. This occurred despite a modest 2.7% rise in employment in the sector, which made it the largest employment pool since the financial crisis. The drop in bonuses is likely a direct reflection of the bad year for securities – profits in the sector dropped for the third straight year. And along those lines, the comptroller has already revised his outlook on bonuses in 2016. Originally, state official forecast the overall bonus pool for fiscal 2016 to expand 0.7%, but now the expectation is it will fall again, by 2.5%, as a result of the continued troubles the financial sector may face this year. But while bonuses fell, there is a silver lining. Certain companies in the industry – such as hedge funds – did see bigger bonuses. And salaries still are increasing: The average Wall Street salary jumped to $404,800 in 2014, which is the most recent year for which the data is available. Plus, firms have proactively changed their bonus practices amid regulatory pressures regarding pay in the industry – paying them out in stock rather than cash and including clawback provisions.
Wall Street Journal
Street gangs across the country are toying with financial crimes, such as check fraud and identity theft, reaping large profits as banks and law enforcement scramble to prevent the illicit activities. It’s a big change for groups associated with the drug trade and violent crimes. But there’s solid reasoning behind their transition toward financial crime: These activities can be much more lucrative and carry shorter prison sentences – if they’re caught. And catching these gangs in the act isn’t so easy. One Brooklyn gang is accused of raking in roughly $500,000 through a check fraud scheme in which the gang members would deposit fake checks and then withdraw the money before banks could identify them as fraudulent. Because of the rise in these crimes, police departments have had to respond accordingly: the New York Police Department, for instance, created a grand-larceny division in 2014.
New credit card rules are forcing retailers to throw up hurdles in the gift card purchase process. Some retailers have begun to require customers to buy the cards with cash or provide ID for gift card sales, while others have reduced the available denominations on cards and put limits on repeat purchases. Even more extreme, some stores have stopped carrying gift cards altogether. The new limits affect so-called “open-loop” cards from Visa, MasterCard and American Express in particular. The crackdown stems from the liability shift last October: The financial institutions that issued the gift cards were previously responsible for fraudulent purchases, but that burden now falls on merchants if they haven’t upgraded to chip-enabled checkout technology. And while the stores are likely doing the right thing in order to prevent criminals from purchasing gift cards with stolen credit card information, consumers likely won’t be pleased. This year, Americans are expected to load prepaid cards, including gift cards, with $651 billion, a 57% jump from six years ago.
The Office of the Comptroller of the Currency is eying new guidance regarding anti-money-laundering laws. The regulator is collecting data on how banks have gone about derisking, particularly by ending relationships with foreign correspondent banks where they may be at risk of violating laws regarding terrorist funding. Thomas Curry said the concern his office has is banks have sought to address the AML concerns in a logical way that could nonetheless have consequences, particularly for customers who see their banking relationships terminated through such derisking activity. Curry added he hopes as banks get settled with AML laws they will see less need to end such relationships. But once the data is gathered, the OCC may release guidance that will direct banks in how to lessen their risk while not affecting consumers too much.
JPMorgan Chase will no longer directly finance new coal mines and new coal power plants in developed countries. The bank’s decision, which was lauded by environmental groups, follows the recent global climate accord that world leaders signed in Paris in December. Coal projects now join the likes of child labor and illegal logging on a list of “prohibited transactions.” Previously, JPMorgan was one of the biggest backers of coal power plants, and the bank only restricted transactions related to controversial operations. The bank still will finance mining groups that produce coal as part of a range of commodities, but it will not finance specific projects or new mines.
A report from a British bank ethics group has drawn ire, as critics say it fell short of its goal of creating ethical standards for the U.K.’s banking industry. The Banking Standards Board, a voluntary group funded by banks that seeks to address ethics in the industry, presented the 30-page report as essentially a series of questions, such as “What is the role of the remuneration committees in shaping culture?” or “What is the firm doing to encourage diversity of thought and experience within its workforce?” The report, which took a year to complete, reflects the results of interviews with 300 bank staff members and the boards of 10 banks. Critics say the group failed to produce any new standards, which was the intent of the report. The BSB was formed last year by the U.K.’s seven largest lenders after Parliament called for ethical improvements following scandals related to the Libor and foreign exchange markets. The group has also drawn criticism for not securing the participation of foreign investment banks with large British operations, such as Goldman Sachs and JPMorgan Chase.
New York Times
Wells Fargo faces fraud charges regarding its underwriting of a $75 million municipal bond deal for a Rhode Island video game company that went bankrupt. The Securities and Exchange Commission charged the bank and the state agency responsible for the bonds with failure to disclose the video game company’s true financial picture. The Rhode Island agency agreed to borrow money and lend most of the proceeds to 38 Studios, a video game company whose chairman was former Red Sox player Curt Schilling. Rhode Island aimed to create jobs and lure other companies to the state with the deal. Allegedly though, both the Rhode Island agency and Wells Fargo failed to disclose in bond offering documents that 38 Studios would still be short on funding even after getting the proceeds from the deal. Also not disclosed was a side deal struck between 38 Studios and Wells Fargo that would see the video game maker pay the bank an additional $400,000 if the bond offering closed. The video game company ultimately declared bankruptcy. Rhode Island’s taxpayers were left on the hook as the state had an obligation to repay the bonds if the company could not, since not doing so could have damaged its credit rating.
Parting can be such sweet sorrow, but in the Royal Bank of Scotland’s case it can also lead to arbitration. A Financial Industry Regulatory Authority arbitration panel has ordered RBS to pay $2.05 million in compensatory damages to the bank’s former head of prime services for the Americas Jeffrey Howard. Finra also ordered the bank to retract his termination and remove defamatory comments from his regulatory record. The decision surprised securities lawyers, the paper said, in terms of how critical it was of RBS. The panel accused the bank of firing Howard in 2014 to distract from real concerns regarding internal turmoil at the bank. It also noted inconsistencies in RBS’ application of internal policies and in the information and rationale used to fire Howard.