Scharf overhauls Wells Fargo’s structure; CECL could be a boon for banks

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Wells Fargo CEO Charles Scharf has made his “first move to stamp out the corporate structure implicated” in the bank’s 2016 phony accounts scandal. “The bank said on Tuesday that it plans to split its three business units into five,” including “splitting its consumer bank into two units: one that focuses on branches and small businesses and another that focuses on consumer lending," the Wall Street Journal reports. "The two units had been run separately prior to 2017. While the reorganization will result in more units, it is designed to provide more oversight, with the heads of each unit reporting directly to Mr. Scharf.”

“Regulators and Wells Fargo’s board have said the company’s decentralized structure — which gave considerable power to the leaders of the bank’s business lines — was among the chief causes of the 2016 scandal. Inside the consumer bank, the run-it-like-you-own-it approach fostered an aggressive sales culture that pushed low-level employees to open fake accounts to hit their targets,” the paper says.

Mike Weinbach, the former CEO of JPMorgan’s home lending division, was named CEO of consumer lending, a newly created position. He will be responsible for home lending, auto loans, personal loans, credit cards and merchant services.

Trouble ahead

UBS Group is facing redemptions of $7 billion from U.S. pension funds from the bank’s $20 billion flagship real estate fund “amid concerns over its retail holdings,” the Journal says. UBS has offered to “reduce fees for investors who stay in the fund and to charge no management fee for new investments.” The fund also recently reshuffled its management.

“The Trumbull Property Fund has been underperforming its benchmark for years," according to the Financial Times, "leaving investors wrestling with how to respond.”

Wall Street Journal

Rising debt, delinquencies

Credit card debt outstanding rose to a record $930 billion in the fourth quarter of 2019, “well above the previous peak seen before the 2008 financial crisis,” the paper says, but the delinquency rate on those loans also rose. The Federal Reserve Bank of New York said card balances rose by $46 billion in the quarter, while “the proportion of credit-card debt in serious delinquency, meaning payments late by 90 days or more, rose to 5.32%, the highest level in almost eight years. The serious-delinquency rate for borrowers from 18 to 29 years old rose to 9.36%, the highest level since the fourth quarter of 2010.”

“The surge in consumer borrowing is either a normal byproduct of a booming economy or a worrisome trend that portends a wave of delinquencies when the next downturn hits,” American Banker’s Kevin Wack writes.

Silver lining

An accounting rule that requires lenders to record expected losses on loans as soon as they make them “could prompt federal banking regulators to set looser capital requirements for financial institutions — a potential benefit for lenders that have largely criticized the rule,” according to an academic research report.

The rule, known as Current Expected Credit Losses, or CECL, “is expected to make lenders more prudent because they have to form expectations of losses and write down risky loans that are nonperforming, thus allowing banking regulators to ease requirements for lenders holding capital,” the study said. “CECL and capital requirements could serve as substitutes to control excessive risk-taking, the research suggests. As a result, looser capital requirements would spur lenders to provide more loans, thus strengthening their bottom line and aiding the economy.”

Case closed

Bank of San Juan Internacional agreed to pay $1 million to resolve U.S. Department of Justice charges that it laundered money for Venezuela’s state-owned oil company. The resolution of the case “followed a civil forfeiture of tens of millions of dollars and close to five months of civil litigation between the bank and federal prosecutors. As part of the resolution, the Justice Department agreed to return $53 million in seized funds to the bank and end its investigation into the bank and its officials.”

Financial Times

Open for business

Mastercard “has secured Chinese government approval to enter the country’s electronic payment services market — 17 years after the sector was theoretically first opened to foreign investors.” On Tuesday “China’s central bank and banking regulator said the U.S. card company’s application to launch a joint venture with a local company had been approved,” the paper says.

“Accelerating approvals for U.S. card companies was one of the provisions” of the recent “phase one” trade deal between the two countries. “Under the terms of the agreement, China said it would formally rule on U.S. card companies’ applications within one month of their submission. Mastercard, Visa and American Express are cited specifically in the text of the agreement.”

Cut and run

German digital bank N26 said it is “pulling out of the U.K. market less than 18 months after launching there, blaming Brexit,” but “rivals and fintech experts questioned whether the bank had simply given up after struggling to gain momentum in the unusually competitive U.K. market.”

A person “close to the bank” told the paper it “underestimated the cost and complexity of operating” in the U.K. “N26 is the largest digital bank in many European markets and was the first European challenger to fully launch in the U.S. last year. But in the U.K. it has faced competition from well-established local rivals such as Monzo and Starling.”

Get a move on

The European Central Bank, “expressing concern about lackluster profitability and a bloated cost base,” wants Commerzbank to speed up its restructuring efforts. “The unusually frank assessment of the strategy of a bank that meets all key regulatory requirements was made by an unnamed ECB official who attended a Commerzbank supervisory board meeting” in December, the paper says.

“The ECB took issue with the lender’s medium-term goal of a 4% return on equity. The target, which the lender wants to meet by 2023, is well below the lender’s cost of capital of about 10%.”


“There are increases in the credit-card-delinquency rate that make you wonder whether some parts of the population are not doing as well, or whether this is just a result of more relaxed lending standards. It’s something we are looking into.” — Wilbert van der Klaauw, senior vice president at the New York Fed, about the recent rise in credit card bad debt

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Wells Fargo Restructuring Consumer lending Payments UBS CECL Career moves