Wells settles investor lawsuit; Tarullo the transition?
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One step up, one back: Wells Fargo agreed to pay $480 million to settle a class action suit brought by investors in California who say they were defrauded by the bank's failure to disclose material facts to shareholders. The settlement, which still requires court approval, was brought by investors who who bought shares in the bank between February 2014 and September 2016, when the bank was fined $185 million by the Consumer Financial Protection Bureau. The investors say Wells made false statements and “artificially inflated” its stock price before the scandal came to light. Wall Street Journal, New York Times, American Banker
Despite all the problems Wells had endured recently, the bank is moving forward. The Financial Times reports Wells is hiring a “couple of hundred” people in its investment banking unit this year, including about 20 managing directors, “rejecting suggestions that the lender was restructuring and in retreat.”
“Before the scandal hit, Wells Fargo had been one of the few expansion stories on Wall Street for the past decade as it leveraged the third-biggest balance sheet in American banking to get deeper into the investment banking world that it had previously eschewed,” the paper says.
Remember blockchain?: Just 1% of more than 3,000 chief information officers surveyed by Gartner have had “any kind of blockchain adoption” within their organizations, the IT research firm says. Only 8% said they were testing the technology, and more than a third said they had “no interest” in it.
“The incidence of turning proof of concept into anything close to resembling a minimum viable product is extremely low,” said David Furlonger, a Gartner fellow and vice president. But companies who don’t eventually adopt it may miss the boat, he says. “If business leaders wait for the hype cycle to run its course they may no longer have a business to operate in — at least nothing like they have previously experienced and profited from,” he said.
But don’t count former Federal Reserve Governor Kevin Warsh as a skeptic. He believes the idea of a central bank minting its own virtual currency — which is built on blockchain technology — “deserves serious consideration.” “Not that it would supplant and replace cash, but it would be a pretty effective way when the next crisis happens for us to maybe conduct monetary policy. It strikes me that a central bank digital currency might have a role to play there,” said Warsh, now a distinguished visiting fellow at the Hoover Institution at Stanford.
Passing grades: Greece’s four biggest banks passed European Central Bank stress tests on Saturday, “an important step toward the completion of an eight-year bailout program that has strained the country’s economy,” the Wall Street Journal reports. As a result, about €20 billion ($23.9 billion) of unused bailout funds targeted for possible recapitalizations could now be used for other purposes, such as debt relief.
But neither the country nor its banks are out of the woods yet. While the stress test results show there is “no immediate need for a capital increase by any bank” and the banks “were out of immediate danger,” they still need to “clean up their balance sheets,” the FT says.
Wall Street Journal
Turning point: Daniel Tarullo’s departure last year as the Federal Reserve’s point man on bank regulation “marked a turning point in the country’s transition from a period of expanded oversight of U.S. banks to one of less,” the paper says. Tarullo, the “primary architect of postcrisis financial regulations that imposed stricter requirements on big financial firms,” now teaches law at Harvard University.
Joint opposition: A Trump administration proposal to ease banks’ leverage ratio is “generating an unusual level of opposition” from both liberals and conservatives in Congress.
Bigger is better: Megabanks widely outperformed their much smaller investment banking competitors in first quarter equity trading revenue. While the big five Wall Street banks reported revenue gains of more than 25% each, smaller regional outfits saw theirs fall by 10% or more. “That suggests one widely held prediction coming out of the financial crisis—that regulation would crimp giant Wall Street trading desks and open opportunities for nimbler, less-regulated trading shops — isn’t holding up.”
Failure near: SoftBank’s proposed deal to buy a stake in Swiss Re is “close to collapsing” following three months of negotiations, during which the size of the investment has been scaled back from an original 33% in February to no more than 10% now. “People close to the situation say the Japanese company’s enthusiasm has waned in recent weeks,” the paper reports.
“Most central banks have a view that these crypto-assets are clever, like guys in the garage did it and it’s kind of cool, or risky.” — Former Fed Governor Kevin Warsh.