N.Y. Fed close to filling market ops spots; Subprime auto-backeds rev up

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Taking the fall

“Bowing to shareholder pressure,” the CEO and chairman of Westpac, Australia’s second-largest bank, are stepping down following charges of “the biggest breach of the country’s money-laundering and terrorism financing laws in history, with more than 23 million breaches that include failing to detect transfers that may have been used to facilitate child exploitation in Asia and failing to report in a timely way about $7.5 billion in international transfers.”

CEO Brian Hartzer is leaving next Monday while Chairman Lindsay Maxsted will retire in the first half of 2020. “The high-profile departures are the latest in a string of cases that have rocked Australia’s financial industry recently, pushing regulators to take a tougher stance on investigating and punishing companies,” the Wall Street Journal says. Wall Street Journal, Financial Times

Wall Street Journal

Lost branches

“Rural communities with poorer residents or large minority populations have been particularly hard hit” by the drop in bank branches resulting from “industry consolidation in the wake of the financial crisis,” a Federal Reserve research report says. “A total of 794 rural counties lost a combined 1,553 bank branches” from 2012 to 2017, “representing a decline of 14% in the number of institutions. The drop was much greater than the 9% drop in the country’s 802 urban communities that also saw a decline.”

“Some consumer segments appear to have been left without sufficient, convenient, and low-cost access to the financial services they need to manage their financial lives,” the Fed researchers wrote.

The envelope please

The Federal Reserve Bank of New York is close to filling the two top staff jobs in its financial markets operations. Candidates include Daleep Singh, currently chief North American economist at SPX Capital, a Brazilian investment fund, and Charles Himmelberg, chief markets economist at Goldman Sachs. “Lorie Logan, the interim manager of the central bank’s asset portfolio, is also seen as a front-runner for one of the two positions,” the paper says.

“The person in one of the jobs will oversee the central bank’s $4 trillion securities portfolio and open market operations, implementing Fed officials’ interest rate decisions. The other will handle the markets group’s operations and technology. The decision comes as Fed officials are debating numerous technical decisions to fine-tune their control of very short-term interest rates following a mid-September spike in a key overnight lending rate.”

The paper says, "The two positions were created to assume the responsibilities previously held by one person, Simon Potter, who was ousted in June by New York Fed President John Williams. "

Financial Times

Crazy for yield

“Yield-crazed investors are shrugging off nagging concerns over the health of the American consumer” and snapping up securities backed by subprime U.S. automobile loans. Deals are “going gangbusters,” according to Jennifer Thomas, an analyst at Loomis Sayles. “At $29 billion so far this year, issuance of subprime auto ABS is on track to surpass 2018’s record haul of $32 billion, despite softer sales of new cars and trucks this year.”

“Bullish investors and analysts point to low unemployment, rising wages, and low total household leverage as evidence of the solidity of the subprime sector, which normally denotes borrowers with credit scores of less than 620 on the commonly used FICO scale.”

Cutting back

TSB, the U.K. bank that has been hit with at least two major IT glitches in the past year, announced several “uncomfortable changes” Monday as part of a new three-year strategic plan to meet its target of £100 million in net annual cost savings. That includes the closure of at least 15%, or 82, of its branches next year, with a resulting reduction of 400 jobs plus additional back-office cuts. The bank, the country’s seventh largest in terms of profits, will also ramp up small business lending while scaling back growth in mortgages.

“The longer we leave tackling the issue, the harder it will be,” CEO Debbie Crosbie said.

Behind the curtain

“China is aiming to be the first country in the world to launch a digital currency, after five years of research by a team in its central bank. The project is still shrouded in secrecy. There have been few details about what form a new sovereign digital currency might take, how it will affect banks and businesses and when it might be launched.” The paper offers its view of “what the People’s Bank of China is really up to.”

Faulty reporting

Citigroup’s U.K. unit was fined £44 million — what the paper calls “the highest ever from the Bank of England” — for making “significant errors” in reporting its capital and liquidity positions between 2014 and 2018, including “six substantive matters which had a material or potentially material impact on the returns.”

“Citi’s framework for reporting its capital and leverage was inadequate, with patchy documentation and without proper resourcing, leaving the BoE with an incomplete view of the Wall Street bank’s financial health, the BoE’s Prudential Regulation Authority said in a statement on Tuesday.” However, the bank “remained in surplus to its capital and liquidity requirements at all times.”

Quotable

“The board accepts the gravity of the issues raised by Austrac. As was appropriate, we sought feedback from all our stakeholders, including shareholders, and having done so it became clear that board and management changes were in the best interest of the bank.” — Westpac Chairman Lindsay Maxsted, announcing that he and CEO Brian Hartzer are stepping down in the wake of accusations by Australia’s financial crimes unit that the bank was responsible for a mammoth breach of the country’s anti-money laundering laws

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