Wells Fargo rebuked; Goldman to open fund to outsiders

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Bad day on the Hill
Shortly after Wells Fargo CEO Tim Sloan was grilled by members of both parties at a House Financial Services Committee hearing Tuesday, the bank received “a rare rebuke” from the Office of the Comptroller of the Currency. “We continue to be disappointed with [Wells Fargo’s] performance under our consent orders and its inability to execute effective corporate governance and a successful risk management program,” the agency said. “We expect national banks to treat their customers fairly, operate in a safe and sound manner, and follow the rules of law.”

At the hearing, Sloan said the bank “has taken major steps to change its ways. But members from both parties were skeptical and used the hearing to press Mr. Sloan on a litany of problems at the lender. Often, lawmakers cut him off before he had a chance to fully answer their questions.”

The statement from the OCC “makes it clear that pressure on the bank remains acute, three years after a scandal over fake accounts revealed numerous governance failings across the company and prompted intense extra scrutiny from regulators.”

One of Sloan’s goals at the hearing was “to convince members of Congress that Wells Fargo had become a better bank. By the time he left, it was clear that few believed him.”

“The hearing is probably a preview of what is expected to be tough oversight of the country’s biggest banks by” the panel. “The committee is also expected to hold a separate hearing with the CEOs of other big banks, such as Jamie Dimon of JPMorgan Chase, soon.”

Open arms
Goldman Sachs is opening up to outside investors its special-situations group, the “profit machine that has invested the bank’s own money in Asian property, African startups and troubled U.S. retailers, among other ventures.”

Opening the unit to outsiders may help to keep it “in growth mode as new chief executive David Solomon reviews capital allocations across the Wall Street firm.” Solomon “has promised to rigorously interrogate how capital is used across the bank and reallocate it to its most profitable and highly-valued areas.”

Separately, the Federal Reserve Tuesday banned former Goldman bankers Tim Leissner and Ng Chong Hwa from the banking industry for their roles in the 1MDB Malaysian fund scandal. Leissner was also fined $1.42 million by the Fed; he has already pleaded guilty to U.S. criminal money laundering and bribery charges. Ng was indicted on similar charges and is awaiting extradition from Malaysia.

Financial Times

Slow start
Citigroup’s new CFO Mark Mason said he expects the bank’s trading business to be down “in the high single digits” in the first quarter, as the equity and debt markets have yet to fully recover from last year’s selloff.

Call to arms
The head of a leading Swedish pension company is calling for “an urgent and continent-wide response” to the spread of money laundering scandals in Europe. “Something must be done,” writes Magnus Billing, CEO of Alecta, the custodian of occupational pensions for 2.4 million Swedes. “The cases of money laundering erupting in the Baltics indicates that this type of crime is not connected to a set number of banks but stems from a greater problem — we have fallen behind in catching the bad guys. This crime is international; the response must be too.”

Elsewhere

Not amused
The California Banking Association is not having a state bill introduced this week that would allow municipalities to create their own local or regional banks. “We are opposed to the bill,” said Beth Mills, a CBA spokesperson. “We think it's misguided, and proponents of the measure have failed to identify how the current financial system is not meeting the needs of our cities and communities, and frankly why there is a need for this bill.” The proposed legislation, AB 857, would allow the state-chartered public banks “to participate in banking and partner with local financial institutions.”

Quotable

“Each time a new scandal breaks, Wells Fargo promises to get to the bottom of it. It promises to make sure it doesn’t happen again, but then a few months later, we hear about another case of dishonest sales practices or gross mismanagement.” — Rep. Patrick McHenry, R-N.C., admonishing Wells CEO Timothy Sloan at Tuesday’s House Financial Services Committee hearing.

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