RBS tells employees to remain home; Shelton inches closer to joining Fed
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Closing the circle
“SoftBank has redeemed its investment in Credit Suisse funds that made big bets on the debt of start-ups backed by the Japanese technology conglomerate’s Vision Fund, after the Swiss bank completed a review of the circular financing arrangement. Credit Suisse launched the review after the Financial Times revealed that SoftBank had invested more than $500 million of its own money into the more than $7.5 billion range of investment vehicles. The funds in turn provided large amounts of financing to several start-ups in which the $100 billion Vision Fund held stakes, including companies hit hard during the coronavirus crisis.”
“In essence, SoftBank was acting as both lender and borrower in a complex circle of transactions,” the Wall Street Journal said. “Credit Suisse found that aspects of this arrangement weren’t fully disclosed to its investors.”
One step closer
Judy Shelton “is poised to take a big step toward joining” the Federal Reserve, “adding a new layer of political tension as policymakers deal with the worst economic crisis in decades. The Senate Banking Committee is set to vote Tuesday on Shelton’s nomination, which previously appeared in jeopardy after several Republicans on the panel suggested Shelton’s views made her too much of an outlier for a seat on the Fed’s board of governors.” Now it appears that all 13 Republicans on the panel will vote for her, while all 12 Democrats will oppose her. Washington Post, Financial Times
Better than expected
UBS “said it could start buying back stock again later this year despite the shadow over markets from the coronavirus pandemic. The Swiss bank reported higher credit losses for the second quarter, at $272 million, but said net profit fell only 11% to $1.23 billion, a better performance than at large U.S. banks, where credit charges reflecting a deteriorating economy wiped out more than half their quarterly profits. The bank, whose main business is wealth management, said it expects credit losses to remain elevated but to be lower in the second half than in the first six months of 2020.” Wall Street Journal, Financial Times
Separately, UBS said it will pay more than $10 million to resolve Securities and Exchange Commission charges that it “broke rules aimed at giving mom-and-pop investors priority access in buying fresh municipal bonds. Cities and school districts issuing municipal debt for building projects can choose to give first priority to small investors. The Municipal Securities Rulemaking Board mandates that brokers the governments hire to sell the bonds follow issuers’ wishes regarding priority.”
“The SEC found that between 2012 and 2016, when UBS distributed newly issued bonds for such brokers and was required to follow the priority rules, it instead placed bonds intended for non-professional investors with other firms, often referred to as flippers, who quickly resold the bonds for a profit. Investigators also found that UBS got improper access to other newly issued bonds by buying them through flippers, which gave UBS a better spot in line for those bonds than the broker would have had if it had bought them directly. Nearly $7 million of UBS’s fine was aimed at forcing the firm to give up ‘ill-gotten gains, the SEC said.”
“European banks are facing as much as €800 billion in loan losses and a €30 billion hit to their revenue over the next three years as a result of the coronavirus crisis, according to a report from Oliver Wyman.”
“The pandemic is unlikely to cripple the sector, however many banks will be pushed into a limbo state with very weak returns,” said Christian Edelmann, co-head of European financial services at the firm. “They will be highly susceptible to further shocks, tend to be risk averse in lending and will struggle to fund transformation efforts.”
Royal Bank of Scotland said the “vast majority” of its employees “can continue to work from home until 2021, despite the British government’s decision last week to scrap guidance encouraging people to work from home from next month. In a memo to staff on Monday seen by Reuters, RBS said it would extend the option to work from home for more than 50,000 employees until 2021, extended from September previously.
“Around 10,000 RBS staff have continued to work in branches, 95% of which have remained open, and some offices during the pandemic. In May around 400 additional RBS staff were asked to return to offices, where protections include a limit of two people per lift, thermal imaging, temperature checks and one-way systems in corridors. Very few additional RBS staff would be asked to return to offices in the immediate future and ‘only where there is a genuine business need or for wellbeing and mental health reasons,’” RBS said.
Executives from Goldman Sachs are in Malaysia this week to resume negotiations with the government to try to resolve their dispute over the bank’s role in the 1MDB fund scandal, Reuters said. Finance Minister Tengku Zafrul Abdul Aziz “expressed hope” that the talks would “enable us to move closer towards achieving the desired results on the recovery of 1MDB assets.”
“Last month, Tengku Zafrul said even compensation of $3 billion would be unacceptable, and that Malaysia would pursue its legal case against Goldman Sachs until an acceptable settlement was offered. Three units of Goldman Sachs have pleaded not guilty in Malaysia to misleading investors over bond sales totaling $6.5 billion that the bank helped raise for 1MDB.”
Avoiding the crosshairs
“Global wealth managers are examining whether their clients in Hong Kong have ties to the city’s pro-democracy movement, in an attempt to avoid getting caught in the crosshairs of China’s new national security law. Bankers at Credit Suisse, HSBC and UBS, among others, are broadening scrutiny under their programs that screen clients for political and government ties and subjecting them to additional diligence requirements.”
“The designation, called politically exposed persons, can make it more difficult or altogether prevent people from accessing banking services, depending on what the bank finds about the person’s source of wealth or financial transactions. The checks at some wealth managers have involved combing through comments made by clients and their associates in public and in media, and social media posts in the recent past. The new law prohibits what Beijing describes broadly as secession, subversion, terrorism and collusion with foreign forces, with up to life in prison for offenders.”