Wells pays another fine; bank stocks keep falling

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ETF fine

Wells Fargo agreed to pay $35 million to settle Securities and Exchange Commission claims “that its financial advisers recommended exchange-traded funds that were too risky for some clients,” including senior citizens and retirees. “The investigation targeted Wells Fargo’s sale of inverse ETFs, a type of fund that moves in the opposite direction of an index it tracks. Regulators have warned for years they are unsuitable for many individual investors,” the Wall Street Journal reports.

“The deal comes one week after Wells Fargo resolved a bigger regulatory cloud, a multiyear investigation into how low-level employees who were stressed by high sales goals opened fake and unauthorized bank accounts. Wells Fargo paid $3 billion to settle those allegations.” Wall Street Journal, Washington Post

Separately, the bank reduced its full-year outlook for net interest income and warned the coronavirus outbreak could have additional detrimental effects, American Banker reports.

Meanwhile, Steven Seagal, the former martial-arts actor, settled his own charges with the SEC. He agreed to pay $157,000 in disgorgements and another $157,000 in penalties for failing to disclose payments he received “for promoting an investment in an initial coin offering for the cryptocurrency Bitcoiin2Gen, also known as B2G.”

The actor “didn’t disclose the $250,000 cash and $750,000 worth of B2G tokens he was promised in exchange for his promotions,” the SEC said. Wall Street Journal, Washington Post

Wall Street Journal

Downward trend

The KBW Nasdaq Bank Index, which tracks the shares of 24 big U.S. banks, fell another 4.2% on Thursday, dragging it deeper into correction territory. The index is “down roughly 18% from its peak in early January. The S&P 500 financial sector is on pace for its worst week since 2009,” the paper says.

“Shutdowns in some supply chains could crimp manufacturing production. That could hurt global banks such as Citigroup and JPMorgan Chase, which move money around the world for multinational corporations. Shares of Bank of America fell 4.9% amid speculation that the Federal Reserve could continue to trim interest rates to combat any economic slowdown spurred by the virus. Bank of America is especially sensitive to changes in U.S. rates because of its large base of U.S. deposits.”

Banks in Europe got hit even harder, with “shares in several European lenders falling more than 7%. Banks with heavy exposure to Europe and Asia have warned profits could be hit by the coronavirus outbreak as they tell employees to restrict travel and initiate special measures to help customers.”

Financial Times

Picking sides

Citigroup named Kristine Braden “head of the Europe cluster” for investment banking and trading and moved her to Germany from New York to oversee markets operations. She succeeds Zdenek Turek, who will become chief risk officer for Europe, the Middle East and Africa (Emea) based in London.

“It is a clear endorsement of Germany as a market and Frankfurt as center for our post-Brexit EU operations,” said David Livingstone, Citi’s Emea head.

Taking a different approach

A day after the Bank of England said it would toughen the terms of its lending to banks that offer collateral based on Libor, the Financial Conduct Authority sent what the paper called the “sternest warning yet” to U.K.-based asset managers “that they must stop using investments and fee-structures linked to Libor” and not wait “for clients to demand a move away from the tainted interest rate.” On Thursday the FCA sent a letter to all U.K. regulated fund managers telling them to “take proactive steps” to “switch their holdings of bonds and derivatives away from those currently based on Libor.”

“Regulators have been increasing the pressure on banks and financial services providers to make the transition to alternative risk-free rates by the end of 2021," the paper notes. "Now, the FCA is pushing the buyers of these products — the asset managers who hold them on behalf of clients — to make concrete plans to switch investments. Firms that buy interest rate swaps must consider changing to contracts based on the sterling overnight index average, or Sonia. Similarly, managers using Libor-linked cash products — such as bonds and loans — have been told that by September they should stop buying any securities maturing after 2021.”

Not guilty

A British jury took just over five hours to acquit three senior Barclays executives of fraud for allegedly funneling £322 million ($418 million) in secret fees to Qatari investors as part of a £11.2 billion financing to avoid a U.K. government bailout during the financial crisis. The “decision leaves the Serious Fraud Office’s case against the bank’s Qatar arrangements in tatters,” the paper says.

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Penalties and fines Wells Fargo SEC Bank stocks Coronavirus Brexit LIBOR