Tag Archives: Commercial Banking

Business

Wells Fargo Stock Is Dropping on Report of Regulatory Concerns

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It has been about five years since it emerged that Wells Fargo staff had been opening accounts for customers without their permission.


Justin Sullivan/Getty Images


Wells Fargo

‘s regulatory trouble aren’t yet in the rearview mirror. The stock is tumbling because of it.

On Tuesday, Bloomberg reported that the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau were disappointed in Wells Fargo’s (ticker: WFC) progress in remunerating victims from its fake- accounts scandal and beefing up its internal controls. The slower-than-hoped-for pace could mean that the bank will face additional sanctions, according to the report.

Wells Fargo shares fell 5.6% Tuesday and were down nearly 4% in Wednesday’s trading. Representatives from Wells Fargo declined to comment, as did the CFPB and the OCC.

Wells Fargo’s recent trading is a blip for a stock that had been soaring both on hopes of a recovering economy and expectations that the bank would soon get out of the regulatory penalty box. Just three weeks ago, Wells Fargo shares were up nearly 70% on the year, outpacing the

SPDR S&P Bank ETF

(KBE), which is up nearly 25%.

Wall Street had been giving credit to Chief Executive Charlie Scharf, who took the helm nearly two years ago. Under Scharf, the bank made changes to its leadership ranks and worked on cost-cutting and other measures to improve its operations. While Scharf has warned that the path to recovery may be uneven, Wall Street wasn’t anticipating Tuesday’s negative news.

“This marks an unfortunate and unexpected turn,” Scott Siefers, managing director at Piper Sandler, wrote in a note Tuesday, reiterating his Neutral rating on the shares. “We believe the market had hoped that any incremental news would be good, rather than akin to what we learned [on Tuesday].”

Other analysts were similarly cautious, calling the report a near-term negative for shares. John Pancari, analyst at Evercore ISI, noted that the Bloomberg report didn’t appear to reveal regulatory concerns about additional wrongdoing by the bank, but that the prolonged recovery could mean higher expenses.

“[The] risk of incremental regulatory action is a negative given implications for the timing of resolution, as well as impact to operating costs,” he wrote. “Additionally, we cannot rule out that these issues could impact investors’ perception of management’s ability to address the various concerns,”

Pancari maintained his Outperform rating on the shares.

The negative news comes almost exactly five years after it emerged that Wells Fargo employees—anxious to hit aggressive sales targets—were opening accounts for clients without their permission. The unauthorized accounts led to extra fees and dings to clients’ credit scores. Quantifying the impact and compensating victims accordingly has proven to be a challenge.

Write to Carleton English at carleton.english@dowjones.com

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Business

Nasdaq to Spin Out Market for Pre-IPO Shares in Deal With Banks

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Nasdaq Inc. is teaming up with a group of banks including Goldman Sachs Group Inc. and Morgan Stanley to spin out its marketplace for shares of private companies.

The deal could help drive more transactions to Nasdaq Private Market, the New York-based exchange operator’s trading platform for shares of companies that haven’t yet had an initial public offering.

Trading in pre-IPO shares has heated up in recent years as startups have waited longer to go public. Employees of such companies often seek to cash out of their shares, while investors may want to get in on a fast-growing technology startup.

Under the deal, Nasdaq Private Market will be moved into a separate, stand-alone company that will receive investments from a group of banks. The group includes Citigroup Inc., Goldman, Morgan Stanley and SVB Financial Group , owner of Silicon Valley Bank. The companies announced the deal Tuesday after it was first reported by The Wall Street Journal.

Terms of the transaction weren’t disclosed. Nasdaq said it would remain the joint venture’s largest shareholder.

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Business

Federal Reserve to End Emergency Capital Relief for Big Banks

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WASHINGTON—The Federal Reserve said Friday it would allow a yearlong reprieve for the way big banks account for ultrasafe assets such as Treasury securities to expire as scheduled at the end of the month, a loss for Wall Street firms that had pressed for an extension to the relief.

The decision means banks will lose the temporary ability to exclude Treasurys and deposits held at the central bank from lenders’ so-called supplementary leverage ratio. The ratio measures capital—funds that banks raise from investors, earn through profits and use to absorb losses—as a percentage of loans and other assets. Without the exclusion, Treasurys and deposits count as assets.

The Fed said it would soon propose longer-term changes to the rule to address its treatment of ultrasafe assets.

“Because of recent growth in the supply of central bank reserves and the issuance of Treasury securities, the board may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability,” the Fed said in a statement.

The Fed stressed that overall capital requirements for big banks wouldn’t decline.

Federal Reserve Chairman Jerome Powell tells WSJ’s Nick Timiraos there is no plan to raise interest rates until labor-market conditions are consistent with maximum employment and inflation is sustainably at 2%. (First published 3/4/2021) Photo: Eric Baradat/Agence France-Presse/Getty Images.

The central bank adopted the temporary exclusion a year ago in an effort to boost the flow of credit to cash-strapped consumers and businesses and to ease strains in the Treasury market that erupted when the coronavirus hit the U.S. economy. The market has since stabilized.

Banks and their industry groups had pressed for an extension to the relief, saying that without it banks might pull back significantly from Treasury purchases, which would add to the upward pressure on bond yields that has rattled markets in recent weeks.

They warned that without the relief, some firms may come close to violating the capital requirements over the coming months. To keep that from happening, they may be forced to buy fewer Treasuries or shy away from customer deposits, the banks said.

This would leave the banks playing a smaller role as intermediaries in the Treasury market, or holding fewer deposits—which they use to buy Treasurys or park as Fed reserves—just as Congress passed a $1.9 trillion relief bill that could push an additional $400 billion in stimulus payments into depository accounts, and lead to more federal government borrowing, analysts say.

Senior Democrats such as Senate Banking Committee Chairman Sherrod Brown of Ohio and Sen. Elizabeth Warren of Massachusetts said before the Fed’s decision that an extension of the relief would be a “grave error,” weakening the postcrisis regulatory regime.

“Opposition in Congress against the relaxation of bank regulation is strong,” wrote Roberto Perli and Benson Durham of Cornerstone Macro, an investment research firm, before the Fed’s announcement.

Big U.S. banks must maintain capital equal to at least 3% of all of their assets, including loans, investments and real estate. By holding banks to a minimum ratio, regulators effectively restrict them from making too many loans without increasing their capital levels.

The banks are sitting on giant stockpiles of cash, U.S. government debt and other safe assets. By tweaking how the ratio is calculated last year, the Fed was effectively trying to engineer a swap. Remove Treasurys and central bank deposits from the calculation, the thinking went, and banks should be able to replace them in the asset pool with loans to consumers and businesses.

It is unclear if that happened. U.S. lenders saw their loan books increase about 3.5% last year, the slowest pace in seven years, according to research from Barclays using Federal Deposit Insurance Corp. data.

Write to Andrew Ackerman at andrew.ackerman@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Citigroup, Wells Fargo, Bank of America urge shareholders to vote against racial-equity audits

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Three of the nation’s biggest banks are asking shareholders to reject racial-equity resolutions after they expressed solidarity with the Black Lives Matter movement last year.

Citigroup Inc.
C,
+0.37%,
Wells Fargo & Co.
WFC,
+1.25%
and Bank of America Corp.
BAC,
+0.82%
were among the many large U.S. companies to make public statements of support in response to widespread protests last summer after the police killings of George Floyd and Breonna Taylor. In recent days, they have all officially opposed shareholder groups’ calls for them to conduct and publicize racial-equity audits and other changes, saying they are already doing enough to address equity issues.

The shareholder proposals urge the banks to examine their practices and policies and identify ways to “avoid adverse impacts on nonwhite stakeholders and communities of color,” something the banks says is unnecessary because they are juggling different, related initiatives and/or have committed money to such issues internally and externally. The proposals are included in proxy statements to shareholders, which allow for the companies to support or oppose shareholder resolutions and explain why ahead of a vote at their annual meetings.

For more: Companies declared ‘Black lives matter’ last year, and now they’re being asked to prove it

CtW Investment Group wrote in its proposal to Citi shareholders that the bank “has a conflicted history when it comes to addressing racial injustice within the communities it serves.” The group provides examples, including Citi getting fined by the Treasury Department in 2019 for failing to offer all customers mortgage discounts and credits; its required minimum maintenance fees and minimum daily balances; and the fact that it has only one Black executive in the C-suite (Chief Financial Officer Mark Mason).

“While we disagree with the overall approach in this proposal, we are completely aligned with its stated goal of addressing racial inequity in the financial sector,” Citi said in its proxy filed Wednesday.

The bank pointed to its $1 billion commitment to providing greater access to banking and mortgages for communities of color, plus making investments in Black businesses. It also said, “As recently as September 2020, Citi released a 104-page report on the economic cost of Black inequality in the United States titled ‘Closing the Racial Inequality Gaps,’” and said its efforts on these issues are available to the public.

Citi is also recommending shareholders vote no on a couple of other racial equity-related resolutions, such as adopting a “Rooney Rule” policy to increase diversity in its board of directors and disclosing its direct and indirect lobbying activities in a report.

See also: Women could pave the way for ESG investing in the U.S.

CtW also mentioned minimum requirements for deposits and fees in its Bank of America resolution, adding that the Treasury Department found in 2018 that the bank offered proportionately fewer home loans to minorities than white applicants in Philadelphia, and that BofA’s C-suite is just 8% Black.

Bank of America said in its proxy released last week that it has committed $1 billion to supporting minority-owned businesses, jobs initiatives in Black and Hispanic communities, affordable housing and donations to historically Black colleges and universities and more. It also touted its work with “consumer advocates in the design and marketing of our financial services and products” and its efforts to diversify its workplace and leadership.

In its proposal at Wells Fargo, the Service Employees International Union Pension Plans Master Trust mentions the bank’s record of discriminatory lending practices that have led to different lawsuits and a settlement with the Department of Justice in 2012, as well as settlements of employment-discrimination claims.

Wells Fargo, which released its proxy Tuesday, said it is conducting a “human rights impact assessment,” and that it will release a summary of those results and the actions it plans to take in response. The company also said it is making efforts toward diversity, equity and inclusion in its workplace and among its top ranks.

Dieter Waizenegger, executive director of CtW, worked with the SEIU on the shareholder proposals. While he said he “welcomed” the banks’ pledges on racial equality and justice issues, “as investors, we believe a critical part of this work is an independent assessment of the effectiveness of these promises.” 

Read: This California investor predicts a 10-year ‘good economy’ revolution that shoves the sharing economy aside

The shareholder groups also had pointed out that the banks’ political and charitable donations have contradicted their stated commitments to justice and equity.

Wells Fargo “has donated to Senator Tom Cotton, who called for military air strikes on Black Lives Matter protests, as well as other members of Congress with racist records,” the SEIU shareholder resolution says.

CtW said “Citi donated $242,000 during the 2020 election cycle to 74 members of Congress who are rated ‘F’ by the NAACP,” and that Bank of America has been involved in issuing “judgment obligation bonds, a portion of which was used to pay for police related settlements” in Los Angeles.

Both Wells Fargo and Bank of America have donated to police departments that “bypass normal procurement processes to buy equipment for police departments, including surveillance technology that has been used to target communities of color and nonviolent protestors,” the shareholder resolutions say.

Goldman Sachs Group Inc.
GS,
+0.95%,
Morgan Stanley
MS,
+1.60%
and JP Morgan Chase & Co.
JPM,
+1.03%
are facing similar shareholder proposals, and have yet to release their proxies. This article will be updated when they do.

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Business

Stocks Fall, Led Lower by Tech Shares

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The Dow Jones Industrial Average inched down 0.1% after closing Wednesday at an all-time high. The S&P 500 fell 0.3%, and the Nasdaq Composite lost 0.6%.

Stocks have wobbled the past week as investors have grappled with a sharp rise in bond yields. The shift, which money managers have broadly attributed to bets on inflation and growth picking up, has tempered enthusiasm for some of the pricier sectors of the stock market.

The S&P 500 technology sector lost 0.5% Thursday, among the worst-performing sectors in the index. Meanwhile, sectors of the market thought to benefit most from rising economic growth, like financials and energy, were higher for the day.

The KBW Nasdaq Bank Index, which tracks the performance of 24 lenders, added 0.6%.

“The market is jittery. The bond yields’ rising is putting equities, especially growth stocks, under pressure,” said

Sebastien Galy,

a macro strategist at Nordea Asset Management. “There is a bit of a risk reduction broadly.”

One group of stocks that bucked the trend: “meme” stocks that have surged in popularity among individual investors this year.

In a wave of volatility reminiscent of last month’s rally,

GameStop

jumped 50%, while

AMC Entertainment

climbed 14%. The two stocks had soared in overnight trading as well.

The moves show “there is still liquidity and a lot of access to speculative bets,” said Sophie Chardon, cross asset strategist at Lombard Odier. “We have to be prepared to live with this kind of targeted bubble, but I wouldn’t see it as a threat to the global equity market.”

Meanwhile, government bond prices fell, with the yield on the benchmark 10-year Treasury note ticking up to 1.460%, from 1.388% Wednesday.

“The rise in yields is supportive for banks, higher oil prices are supportive for energy. It is a change of leadership,” Ms. Chardon said.

Overseas, the pan-continental Stoxx Europe 600 edged up 0.2%.

Among individual equities, beer maker

Anheuser-Busch InBev

fell almost 6% after its fourth-quarter profit came in below estimates.

Traders worked on the floor of the New York Stock Exchange on Wednesday.



Photo:

Nicole Pereira/Associated Press

British packaging company

DS Smith

jumped over 6% on reports that rival Mondi is exploring a takeover.

Investors have also been selling European government bonds in recent weeks as they look for higher returns. The yield on French 10-year bonds, which moves inversely to the price, ticked up above zero for the first time since June and reached as high as 0.024%.

In Asia, most major benchmarks finished the day up.

The Shanghai Composite Index added 0.6% and Hong Kong’s Hang Seng Index climbed 1.2%. South Korea’s Kospi Index rallied 3.5% after its central bank kept interest rates at historic lows.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Akane Otani at akane.otani@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

M&T Bank Nears Deal to Buy People’s United for More Than $7 Billion

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M&T Bank Corp. is nearing a deal to buy People’s United Financial Inc. for more than $7 billion, according to people familiar with the matter, in the latest in a string of regional-bank tie-ups.

The companies are discussing an all-stock deal that could be announced as soon as this week, the people said, assuming talks don’t fall apart. Based in Bridgeport, Conn.,based People’s United has a market value of roughly $6.6 billion, while Buffalo, N.Y.-based M&T’s is more than $19 billion.

Combined, the banks would have more than $200 billion in assets, with a network of branches concentrated in the Northeast and mid-Atlantic regions. The deal would facilitate M&T’s expansion into the Boston market and strengthen its position in New York and Connecticut.

For M&T, a serial acquirer, it would be its first major takeover since its acquisition of Hudson City Bancorp Inc. in 2015. That deal was delayed for three years after regulators found “significant weaknesses” in M&T’s anti-money-laundering and consumer-compliance programs.

M&T is among the largest regional lenders in the Northeast, with $142.6 billion in assets at the end of 2020. Commercial real-estate loans comprise almost 40% of its portfolio, including some to New York City’s battered hospitality sector. But loan performance at the bank, as well as that of many of its regional peers, has been better-than-expected over the past year.

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