The high court's CFPB ruling; Wells to cut dividend in Q2

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Fire at will

The Supreme Court ruled Monday that the structure of the Consumer Financial Protection Bureau was unconstitutional and that the president could remove the director for any reason. “In a 5-4 ruling along ideological lines, the court said Congress overstepped constitutional boundaries in 2010 when it created the CFPB and placed it under the control of a single director who was insulated from the White House’s political direction. But the court, in an opinion by Chief Justice John Roberts, said the setup meant the CFPB’s director was unaccountable to the executive branch, creating an unconstitutional reduction of presidential power.”

“As a remedy, Chief Justice Roberts said it was enough to give the president the freedom to fire the director at will. While Congress preferred an independent CFPB, the court said lawmakers likely would have preferred a dependent CFPB to no agency at all.”

“On its face, [the decision] sounds like a major blow,” former CFPB director Richard Cordray writes in a Washington Post op-ed. “The court’s holding that the agency was established in an unconstitutional manner might seem to jeopardize everything it does and all that it has ever done.”

“But that is not the upshot of the decision. If anything, this ruling is a sheep that comes in wolf’s clothing. Although the court did invalidate the independent tenure of the CFPB’s single director, seven of the nine justices stopped right there and refused to go further. By carefully slicing off the tenure protections for the director, they left all other aspects of the agency in place. In fact, Chief Justice John G. Roberts Jr. pointedly noted that ‘the CFPB’s structure and duties remain fully operative without the offending tenure restriction.’”

“While the ruling ends years of litigation against the agency, observers said it could result in even more intense political jockeying to control the bureau, legal questions about new CFPB enforcement actions and rulemaking, a legislative effort to change the leadership structure, and a brighter spotlight on other agencies with single directors,” American Banker reports.

Wells stands alone

Wells Fargo “said it expects to cut its dividend for the first time in more than a decade to preserve capital to weather the coronavirus pandemic. The bank said it would announce its payout when it reports second-quarter earnings on July 14” but that it would be less than the 51 cents it paid in each of the four previous quarters. “This would be the first time any of the major banks reduced its per-share payout since the second quarter of 2009, when they faced an existential threat from the housing crisis.” Meanwhile, the five other big U.S. banks “said they intend to hold their dividends steady.”

Wells CEO Charlie Scharf said “he expects the bank will need to make a bigger increase in its allowance for credit losses than in the first quarter.”

Goldman Sachs said it “can meet additional capital demands from the Federal Reserve without changing its strategy. Goldman is the only major bank that was left with a capital shortfall after the Fed last week gave banks indicative requirements for the ‘stress capital buffer’ which they must meet by Oct. 1. The other big Wall Street banks all confirmed that their new capital requirements were lower than their existing capital levels, and said they would maintain current dividend payments.”

“While Wells was announcing it would be cutting its dividend, seven other big banks said they would set aside a stress test capital buffer greater than the minimum of 2.5%,” American Banker reported.

PPP ending, or not?

The $670 billion Paycheck Protection Program is scheduled to close to new applications Tuesday night, with $134 billion still unspent. The White House and Congress are debating what to do with the remaining funds. Wall Street Journal, New York Times, Washington Post

Wirecard aftermath

“The international fallout from the Wirecard scandal grew on Monday,” as the company’s U.K. subsidiary “scrambled to avoid collapse and Singaporean authorities prepared to expand their ‘extensive’ criminal investigation into the company. Wirecard Card Solutions said it was ‘working hard’ to restore operations after the Financial Conduct Authority forced it to stop all regulated activities.”

Separately, “the Monetary Authority of Singapore and the Accounting and Corporate Regulatory Authority are collaborating with [the police’s commercial affairs department] CAD to scrutinize other possible aspects of the case,” the monetary authority said.

Later Monday, the FCA lifted its ban on Wirecard’s U.K. arm, “restoring services for millions of customers who had been temporarily unable to access money or make payments through fintech apps relying on its technology.” However, the unit “remains subject to restrictions around where it can keep customers’ money and asset transfers.”

In Germany, “the Federal Ministry of Justice and Consumer Protection is working on a new regulatory setup together with the Federal Ministry of Finance” in the wake of the scandal. “The justice ministry on Monday also canceled its contract with the country’s accounting watchdog, the Financial Reporting Enforcement Panel, effective Dec. 31, 2021.

“The scandal at Wirecard has not only exposed a multibillion-dollar fraud in the accounts and profound failures of oversight. It has also raised fresh questions of whether payments regulation in Europe has kept pace with the huge changes in the industry,” Huw van Steenis, a former adviser to the governor of the Bank of England and chairman of the sustainable finance committee at UBS, writes in a Financial Times op-ed. “The pandemic is accelerating our use of electronic payments and digital wallets. As a result, an even larger proportion of payments is likely to take place outside the tightly regulated perimeter of financial services. Wirecard’s bankruptcy underscores the urgency of next-generation payments regulation.”

Financial Times

Virus windfall

“Investment banking fees soared to a record $57 billion in the first six months of the year, boosted by a series of lucrative debt sales as companies grabbed cash to tide them through the coronavirus crisis. Emergency financings by Ford, Carnival and Boeing were among the fundraisings that provided multimillion-dollar paydays for Wall Street banks that found investors willing to stump up the money.”

“The boom in debt fees more than offset the decline in bank income from advising on mergers and acquisitions as deal-making slowed.”

Changing of the guard

Santander “is close to naming William Vereker, the former business envoy of former prime minister Theresa May, as its new U.K. chairman, tasked with overseeing one of the country’s largest high street banks. Vereker, who joined JPMorgan Chase only five months ago, will replace Shriti Vadera when she steps down later this year to become chair of British insurer Prudential.”

Vereker “will be charged with galvanizing sluggish performance in the U.K. and helping implement a €1 billion cost-cutting program across Europe, a region that has failed to keep up with surging profits across Latin America.”

Quotable

“The CFPB’s single-director structure contravenes this carefully calibrated system by vesting significant governmental power in the hands of a single individual accountable to no one.” — U.S. Supreme Court Chief Justice Roberts writing the lead opinion in court’s decision giving the president the power to remove the director at will.

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