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Wirecard fallout spreads; FINRA fines Wells $2 million for annuity practices

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Conflicts of interest

Germany’s two largest banks said they have dropped accounting firm Ernst & Young “over its longstanding role auditing the financials of Wirecard, the fintech company embroiled in one of Europe’s biggest corporate accounting scandals in recent years,” the Wall Street Journal reported. “Commerzbank, Germany’s second-largest lender, and DWS Group, Deutsche Bank’s asset-management arm, both decided not to use EY’s affiliate in Germany, Ernst & Young GmbH, to audit their accounts.”

“The decisions were made because of Commerzbank’s exposure to Wirecard as a creditor and DWS’s as an investor through its funds. Both would face conflicts of interest if they decided, for instance, to sue EY for any role it played in auditing Wirecard, while also being audited by it.”

“DWS, which manages assets of €745 billion, was one of a number of fund groups that made outsized bets on Wirecard despite questions over its accounting,” the Financial Times said. “Several DWS funds were invested in Wirecard, including its flagship Deutsche fund, which allocated 9.2% of what was then a €5.1 billion fund to shares in the payments company.”

“As Wirecard unraveled in June, DWS rapidly sold down its stake and said it was ‘analyzing the situation and considering legal action.’”

Meanwhile, “the head of Germany’s financial watchdog has rejected calls to resign over the scandal at Wirecard, while saying that with hindsight he should have called for prosecutors to open an investigation sooner,” the FT reported. “Felix Hufeld said at a conference on Wednesday that he would not resign ‘as long as my country and Europe have trust in me.’”

“The BaFin boss, whose position has been called into question by some German MPs, conceded ‘we didn’t see the wood for the trees’ and said the regulator was ‘too late’ in finding the alleged ‘criminal activity.’ BaFin has been criticized for not investigating allegations properly and for the disclosure that its staff were trading Wirecard shares shortly before it declared insolvency, raising questions about potential conflicts of interest.”

A member of the FT’s investigation team describes five years of “intimidation, surveillance and conspiracy theories” in trying to cover the Wirecard scandal. “German banks and regulators waved away evidence of corporate criminality to place me at the heart of a conspiracy theory. At times, it seemed like the world had gone mad,” he writes.

Wall Street Journal

Holding their gains

Broadway Financial and Carver Bancorp were two of the biggest beneficiaries of a surge in interest in Black-owned businesses around the “Juneteenth” holiday, with share prices climbing 151% and 513%, respectively. Although the spikes didn’t last, “shares in Carver are about three times what they were in early June and are up nearly 150% year to date. Broadway Financial stock is up about 30% from its pre-spike level in mid-June and has risen about 11% so far in 2020.”

Key Fed adviser dies

Thomas Laubach, “a top adviser to Federal Reserve Chair Jerome Powell who led the central bank’s division of monetary affairs, died Wednesday at his home in Kensington, Md., after being treated for pancreatic cancer. He was 55. As director of monetary affairs, he was a key participant in meetings of the central bank’s rate-setting Federal Open Market Committee, tasked with preparing briefings, strategies and the heavily scrutinized policy statements delivered upon their conclusion.”

“Mr. Laubach was an influential thinker in monetary economics. He authored seminal research used to measure estimates of the interest rate that neither spurs nor slows economic growth, work that underpinned shifts in Fed policy-making in recent years.”

Financial Times

Digging for loopholes

“Under mounting pressure from customers and shareholders for action on climate change, a string of banks have announced they will withdraw credit to the most carbon-intensive natural resources projects. But critics say the sector has been too slow to act, has barely scratched the surface and continues to exploit loopholes to finance the biggest corporate polluters.”

Elsewhere

Another Wells blunder

Wells Fargo “agreed to pay $2.12 million in fines and restitution to settle U.S. regulatory charges its brokers failed to properly account for the costs of switching customers who owned variable annuities to new investments,” Reuters reported. “The Financial Industry Regulatory Authority said Wells Fargo failed to supervise the suitability of recommendations that customers sell variable annuities carrying surrender fees, and use proceeds to buy mutual funds and unit investment trusts carrying upfront sales charges.”

“FINRA said the cost of switching could more than offset the higher returns available on the new investments, leaving customers with less income than if they had stayed put. It said it identified at least 101 potentially unsuitable switches, including a customer who incurred $14,037 in fees and charges when surrendering a $180,500 annuity. The payout by Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network includes $1.45 million in restitution and $675,000 in civil fines.”

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