Sen. Susan Collins of Maine said she will join fellow Republican Mitt Romney of Utah in voting against Judy Shelton’s nomination to the Federal Reserve’s board of governors. Collins “said she had serious concerns about the nomination, citing statements Ms. Shelton made last year that were dismissive of the Fed’s longstanding autonomy from the White House in setting interest-rate policy. Ms. Shelton’s past writings have also questioned the need for a central bank.”
Senator Susan Collins, a Republican from Maine, speaks to members of the media near the Senate Subway in Washington, D.C., U.S., on Thursday, July 27, 2017. Senate Republicans are gearing up to try to pass a stripped-down Obamacare repeal plan many hope won't become law. Photographer: Zach Gibson/ Bloomberg
Zach Gibson/Bloomberg
“Republicans have a 53-47 vote advantage in the Senate, meaning that Ms. Shelton can’t afford to lose more than three Republicans if all Democrats oppose her candidacy. The Senate hasn’t set a date for a vote on her nomination but Senate aides and a White House official said a vote was possible by next week,” the Wall Street Journal said.
Collins’s defection “raises the stakes of a political fight around one of President Trump’s controversial picks for a seat on the central bank,” the Washington Post said. “Collins and Romney alone cannot derail Shelton’s advancement, but the margin is getting thinner for Shelton. If the Senate’s Democrats and independents all vote against Shelton’s nomination, her confirmation could be doomed if she loses the support of four Republicans.”
No dividends
The European Central Bank extended its recommendation that banks in the eurozone hold off on paying dividends and buying back shares until next year. An earlier recommendation called on banks to withhold payouts through October. “It also asked banks to moderate the payment of bonuses and consider alternatives to cash payments, such as shares. It said it would review its position in December.”
“The build-up of strong capital and liquidity buffers since the last financial crisis has enabled banks during this crisis to continue lending to households and businesses, and thereby to help stabilize the real economy,” Andrea Enria, chair of the ECB’s supervisory board, said. “Therefore, it is all the more important to encourage banks to use their capital and liquidity buffers now to continue focusing on this overarching task: lending, whilst of course maintaining sound underwriting standards.”
They did it again
Goldman Sachs “has pulled off another audacious feat” in its recent agreement to settle claims by Malaysia over the bank’s role in the 1MDB scandal, the Financial Times said. “Goldman will fork out $2.5 billion, instead of the $7.5 billion the finance minister had originally demanded, and the Malaysian government agreed to drop criminal charges against the bank and cease legal proceedings against 17 current and former Goldman directors. So far, so typical of big bank disciplinary cases.”
“But during the last round of in-person negotiations, Goldman Sachs general counsel Karen Seymour and executive vice-president John Rogers pulled off what can only be described as a miraculous change in atmosphere. Rather than hostile talks between adversaries, the negotiations ended up so friendly that the group posed for pictures to celebrate the deal signing — complete with Covid-19 protective face masks. The Goldman executives look for all the world like they just helped the country, rather than paying out billions to settle fraud allegations.”
Separately, Goldman “is adopting a performance review system that will grade up to 10% of its 39,000 employees as under-performers this year, potentially leading to more job cuts in 2021 than the bank has made in recent years,” Reuters reported. “Under the new system, 25% of staff will be graded ‘exceeds expectations,’ 65% will get ‘fully meets expectations,’ and 10% will be marked as ‘partially meets expectations’ in their annual reviews in December.”
“Goldman Sachs’ new head of human resources, Bentley de Beyer, who joined the bank in January, is revamping its opaque performance review process to make it more transparent and determine what proportion of staff is put in each grouping. The bank’s main goal is to let staff know where they stand as roughly 90% of the bank’s workforce works from home due to COVID-19 restrictions.”
Wall Street Journal
Early warning
Visa and Mastercard “each imposed fines exceeding $10 million more than a decade ago” on the defunct German payments company Wirecard for “miscoding gambling transactions and high levels of stolen card purchases and reversed transactions.” After that, the two companies “remained wary of Wirecard’s business. Since at least 2015, Visa executives were concerned that Wirecard was a problem.”
“Visa asked Wirecard to cut off certain merchants and said too much of its business originated from risky areas such as gambling, pornography and unregulated health-care products known as nutraceuticals. Some of Wirecard’s clients changed names to avoid being identified as problem merchants. Such high-risk clients were highly lucrative to Wirecard,” with some of them paying 10% transaction fees, compared to the more typical rate of 2% to 3%.
New York Times
Big gift
“Big banks may get a big gift in the stimulus bill being drafted by Senate Republicans,” the Times reports. “Lawmakers are expected to include language that would give the Federal Reserve authority to relax a requirement surrounding capital levels at the biggest banks, essentially allowing firms to load up on riskier assets. The push is the culmination of a months-long effort by industry lobbyists and a top Federal Reserve official to change a restriction put in place in the wake of the 2008 financial crisis to prevent banks from engaging in risky behavior.”
Sen. Mike Crapo, R-Idaho, the chairman of the Senate Banking Committee, “is working on legislation that would give regulators the discretion to let banks exclude certain items on their balance sheets when calculating how much capital they are required to hold. The change could allow banks to be less conservative in their risk-taking than in recent years. It could be particularly useful for banks with large Wall Street trading operations, because it would let them increase their holdings of certain kinds of financial assets, like government bonds, without requiring a corresponding increase in capital reserves.”
Financial Times
Who’s worse?
“In a study that upends the traditional wisdom of European banks’ relative weakness,” Accenture is forecasting that “U.S. banks’ profits will be hit twice as hard by provisions for loan losses” — relative to the size of their loan portfolios — “as a result of the pandemic than their European peers.”
“The $427 billion of loan loss charges predicted for 58 U.S. banks over the three-year period equates to about 10.2% of their estimated average 2020 loan books, Accenture’s data shows. The 50 European banks in the study are expected to take loan loss charges of $455 billion over the same period which, by contrast, are equal to roughly 4.6% of their 2020 loan balances.”
Elsewhere
Action plan
CEO Noel Quin said HSBC “aims to double the number of Black staff in senior roles by 2025” as it “attempts to take action against discrimination and create opportunities for advancement in the wake of the Black Lives Matter movement,” Reuters reported. In meetings following the killing of George Floyd in May, Black employees told the bank that “HSBC has not been strong or vocal enough as an organization on matters that concern them,” Quinn said in a staff memo.
“In response Quinn said the bank would aim to double by 2025 the number of Black staff at ‘GCB3’ or higher level, a senior rank in the firm’s hierarchy equivalent to director. The bank did not say what proportion of its current senior employees are Black.”
Quotable
“The Black Lives Matter movement has rightly created more urgent demand for action. I want us to be judged by the concrete, sustainable actions we take to be a more diverse and inclusive bank.” — HSBC Chief Executive Noel Quinn, announcing that the bank plans to double the number of Black senior staff by 2025.
Max Levchin, CEO of the buy now/pay later lender, said recent tests show young adults prefer interacting with intelligent chatbots over phone-based agents, but the company doesn't foresee major cost savings from generative AI for a few more years.
When the Trump tax cuts expire next year, the White House will ask for higher corporate taxes and a buyback tax as Congress enters one of its biggest economic fights of the decade, which will have major implications for bankers.
Large banks, particularly those with over $100 billion in assets, see increasing supervisory shortcomings related to interest rate and liquidity risks, governance and risk control issues, and cite cybersecurity, CRE values, and remote work trends as potential hazards in the future.
American Heritage Federal Credit Union in Philadelphia plans to acquire three branches and $105 million of deposits from Linkbancorp. The deal is part of a growing number of transactions involving credit unions buying whole banks or portions of their branch networks.
In this week's edition of the American Banker news quiz, gauge your understanding of topics like Trump's ongoing criminal trial, alleged misconduct within the Federal Deposit Insurance Corp., industry succession planning and more.
Many banks got shares in the lucrative payments network when it went public in 2008. Some of them are now looking to sell in order to offset losses on their sales of underwater bonds.
