U.S. Senator Elizabeth Warren (D-MA) questions Charles P. Rettig, commissioner of the Internal Revenue Service, during the Senate Finance Committee hearing titled The IRS Fiscal Year 2022 Budget, in Dirksen Senate Office Building in Washington, D.C., June 8, 2021.
Tom Williams | Pool | Reuters
Wells Fargo’s decision to pull customers’ credit lines was lambasted by Sen. Elizabeth Warren.
The bank has been notifying customers that their personal lines of credit would be closed, a move that could potentially damage their credit scores, CNBC reported Thursday.
“Not a single customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence,” Warren, a Massachusetts Democrat, tweeted Thursday evening. “Sending out a warning notice simply isn’t good enough – Wells Fargo needs to make this right.”
It was the latest controversy to afflict Wells Fargo since its fake accounts scandal emerged in 2016. Bank employees were found to have improperly created millions of unneeded accounts to hit aggressive sales goals. The Federal Reserve took the unusual step of constraining the bank’s balance sheet in 2018, a restriction that has forced it to shun deposits and pare products.
Wells Fargo didn’t immediately respond to a request to reply to Warren’s comments.
The bank also hasn’t responded to e-mailed questions about why customer credit scores would be affected. However, by reducing the amount of credit a customer has available, the closures could raise their credit utilization ratios. This means borrowers would be using a greater percentage of their available credit, which may have a negative impact on their scores.
Wells Fargo told customers it made the decision to cull the lines, which ranged from $3,000 to $100,000 in revolving credit, to focus on its credit cards and personal loans. Yesterday, after publication of the CNBC piece, the bank issued this statement:
“We realize change can be inconvenient, especially when customer credit may be impacted,” bank spokesman Manny Venegas said in an e-mail. “We are providing a 60-day notice period with a series of reminders before closure, and are committed to helping each customer find a credit solution that fits their needs.”
This story is developing. Please check back for updates.
Become a smarter investor with CNBC Pro. Get stock picks, analyst calls, exclusive interviews and access to CNBC TV. Sign up to start a free trial today.
Wells Fargo is shutting down all existing personal lines of credit and is not offering the consumer lending product anymore, CNBC reported on Thursday, citing letters from the bank.
The product, which usually gave users $3,000 to $100,000 in revolving credit lines, was pitched as a way to consolidate higher-interest credit-card debt, pay for home renovations or avoid overdraft fees on linked checking accounts, the report said.
Customers have been given a 60-day notice that their accounts will be shuttered, according to the report.
Wells Fargo did not immediately respond to a Reuters request for comment.
The move comes more than a year after the bank suspended home equity loans, given the economic uncertainty fueled by the COVID-19 pandemic.
The fallout from the pandemic also prompted the bank to stop providing loans to a majority of its independent auto dealer customers last year.
Regulators are signaling they want more control over an expanded cryptocurrency universe that has pushed further into Wall Street activities without the investor and consumer protections that apply to traditional securities and financial services.
The catch: no single regulator inspects crypto exchanges or brokers, unlike in the securities and derivatives markets. Regulators step in only when they believe U.S. law applies to a particular cryptocurrency or transaction, based on the way the asset was sold or traded.
Once a quirky asset that required navigating special exchanges to buy, cryptocurrencies can now be easily purchased on mobile apps from PayPal Holdings Inc., Square Inc.’s Cash app and Robinhood Markets Inc.
“A lot more money is being put into it, there is a lot of trading and the uses seem to be expanding,” said Dan Berkovitz, a commissioner on the Commodity Futures Trading Commission. “I see a concern about whether we have a shadow financial system developing, and that should be a question for all of the regulators.”
Securities and Exchange Commission Chairman Gary Gensler has told House lawmakers that investor protection rules should apply to crypto exchanges, similar to those that cover equities and derivatives. Regulated exchanges are required by law to have rules that prevent fraud and promote fairness. But crypto exchanges face no such standard, Mr. Gensler said at the Piper Sandler Global Exchange and FinTech conference last month.
A Swiss flag flies over a sign of Credit Suisse in Bern, Switzerland
FABRICE COFFRINI | AFP | Getty Images
Credit Suisse on Tuesday announced several high-level staff departures and proposed a cut to its dividend as it weighs heavy losses from the Archegos Capital saga.
“Particularly following the significant US-based hedge fund matter, the Board of Directors is amending its proposal on the distribution of dividends and withdrawing its proposals on variable compensation of the Executive Board,” the Swiss lender said in a trading update.
Investment Bank CEO Brian Chin and Chief Risk and Compliance Officer Lara Warner will step down from their roles with immediate effect, the bank said.
Last week, Credit Suisse revealed that it was expecting heavy losses in the wake of the meltdown of U.S. hedge fund Archegos Capital. The bank was forced to dump a significant amount of stock to sever its ties to the troubled family office, and now expects a first-quarter pre-tax loss of around 900 million Swiss francs ($960.4 million).
“This includes a charge of CHF 4.4 billion in respect of the failure by a US-based hedge fund to meet its margin commitments as we announced on March 29, 2021,” Credit Suisse added.
This is a developing story and will be updated shortly.
2 Compelling Dividend Stocks Yielding at Least 8%; Oppenheimer Says ‘Buy’
The crises of the past year – the COVID pandemic, the social lockdowns, the economic shock – are on the wane, and that’s good. However, the crisis post-mortems are rolling in. It’s only natural to compare the current economic crisis to the ‘Great Recession’ of 12 years ago, but as Oppenheimer’s chief investment strategist John Stoltzfus points out, “Considering the differences in what caused the Great Financial Crisis of a little more than 12 years ago… and the current crisis… it’s little wonder that as good as things are when compared to this time last year there remains much to be revealed as to how the exit and the legacy of the pandemic crisis will take shape…” Stoltzfus also believes that the economic data, while suffering some setbacks, is generally resilient. Markets are rising, and that, as Stoltzfus says, “…in our view likely presents more opportunity than risk for investors who have suitable tolerance for risk and who practice patience.” Taking Stoltzfus’ outlook into consideration, we wanted to take a closer look at two stocks earning a round of applause from Oppenheimer’s stock analysts. Using TipRanks’ database, we learned that both share a profile: a Strong Buy consensus rating from the Street’s analyst corps and a reliable dividend yielding at least 8%. Let’s see what Oppenheimer has to say about them. Owl Rock Capital (ORCC) We’ll start with Owl Rock Capital, one of the financial industry’s myriad specialty finance companies. These companies generally inhabit the middle-market finance sector, where they make available capital for acquisitions, recapitalizations, and general operations to mid-market companies that don’t necessarily have access to other sources of credit. Owl Rock’s portfolio consists of investments in 119 companies, totaling $11.3 billion. Of these investments, 96% are senior secured loans. Owl Rock reported its 4Q20, and full year results, at the end of February. The company saw Q4 net income of $180.7 million, which came out to 46 cents per share. This was up from 36 cents per share in 4Q19, a 27% increase. Also up was investment income, which at $221.3 million for the quarter was up 9% year-over-year. Full-year investment income was $803.3 million, up more than 11% from 2019. In addition, the company finished 2019 with over $27 billion in assets under management. Of particular interest to dividend investors, Owl Rock’s board declared a 31-cent per common share dividend for the first quarter. This is payable in mid-May, and matches the company’s previous regular dividend payments. The annualized rate of $1.24 gives a yield of 9%. Also of interest about Owl Rock’s dividend, the company paid out the sixth and final special dividend – related to the 2019 IPO launch – in this past December. In 2019, ORCC paid out for 80 cent special dividends, along with the regular dividend payments. The company has kept its dividend reliable, meeting both the regular and special payments, since going public in the summer of 2019. Owl Rock caught the attention of Oppenheimer’s Mitchel Penn, who sees the company as a solid investment with potential to beat the estimates. “We estimate EPS of $1.22 and $1.34 in 2021 and 2022 for an ROE of 8% and 9%, respectively. We project that Owl Rock can earn a 8.5% ROE, and given an estimated cost of equity capital of 8.5% we calculate a fair value of $15/share or 1.02x book value,” Penn noted. “To achieve an 8.5% ROE, ORCC will either need to increase its portfolio yield from 8.4% to 9.0% or increase its leverage from 1x to 1.2x. It’s also possible that it does a little of both. Our model accounts for the fee expense increase from a flat 75 bps to a base fee of 1.5% on assets and an incentive fee of 17.5% on income.” Penn rates this stock an Outperform (i.e., a Buy), and his $15 price target suggest a 7% upside potential from current levels. The dividend yield, however, is the true attraction here (To watch Penn’s track record, click here.) ORCC shares have attracted 3 recent reviews, and all are to Buy – which makes the Strong Buy consensus rating unanimous. This stock is selling for $13.98 per share and has an average price target of $14.71. (See ORCC stock analysis on TipRanks) Fidus Investment Corporation (FDUS) Sticking with the mid-market finance sector, we’ll take a look at Fidus Investment. This company, like Owl Rock, offers capital access to smaller firms, including access to debt solutions. Fidus has a portfolio that is based mainly on senior secured debt, along with mezzanine debt. The company that Fidus has invested in are valued between $10 million and $150 million. In the fourth quarter, rounding out 2020, Fidus invested in seven companies new to its portfolio, putting a total of $103.9 million into the investments. The company’s portfolio, for that quarter, brought in an adjusted net investment income of $10.7 million, or 25 cents per common share. This was up 3 cents, or 13%, year-over-year. For the full year 2020, the adjusted net income reached $38 million, up from $35.3 million in 2019. Per share, 2020’s $1.55 was up 7.6% yoy. Fidus’ shares have been climbing steadily in the past year. Since last April, the stock has gained an impressive 153%. This gives FDUS a solid share appreciation, to complement the dividend returns. Those dividends are substantial. The company declared its 1Q21 payment in February, and paid out on March 26. The regular payment, at 31 cents per common share, yields 8% with an annualized payout of $1.24. In addition to this regular payment, Fidus also declared a special dividend of 7 cents per share, nearly double the 4-cent special payment made in the previous quarter. Turning now to the Oppenheimer coverage on Fidus, we find that 5-star analyst Chris Kotowski is pleased with this company, enough to rate it an Outperform (i.e. Buy) with an $18 price target. This figure suggests a 15% one-year upside. (To watch Kotowski’s track record, click here) “The fundamentals [are] stable with debt investments at year-end essentially stable and interest income in line with both the prior quarter and our estimate…. What we are most pleased about is that we ended the year with only one small non-accrual. There was a significant loss during the year on one credit, which was crystallized in 4Q20, but there were also equity gains in 1Q20 that offset that, and in our mind, the fact that we end a year like this with minimal net losses validates FDUS’s business model.” Of Fidus’ dividend policy, maintaining a base payment with special dividends added on when possible, Kotowski writes simply, “We think a variable dividend makes a world of sense.” Like ORCC above, this is a stock with a unanimous Strong Buy consensus rating based on 3 recent positive reviews. Fidus’ shares are selling for $15.70 and their $17.17 average price target indicates a 9% upside potential from that level. (See FDUS stock analysis on TipRanks) To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Credit Suisse Group AG leaders are discussing replacing chief risk officer Lara Warner while sparing Chief Executive Officer Thomas Gottstein as they tally losses that could reach into the billions from the collapse of Archegos Capital Management, according to people briefed on the matter.
The bank is set to give investors an update on the Archegos fallout, including the fate of top executives such as investment bank chief Brian Chin, two of the people said. They also said the Swiss firm is planning a review of its prime brokerage business, which is housed in the investment bank.
“I think it is unfair at this stage to put this on Mr. Gottstein,” David Herro from Harris Associates, one of the bank’s top shareholders, said in a Bloomberg TV interview last week. “He attempted and has been attempting to reorganize Credit Suisse, but Rome wasn’t built in a day. Unless we see evidence to the contrary, I think he is the right person to continue to lead the organization.”
A Credit Suisse spokesperson declined to comment.
Read more: How Credit Suisse is bracing for a stunning losses likely to run into the billions
The No. 2 Swiss bank stands as one of the biggest potential losers in the meltdown at Archegos, which could cost banks a collective $10 billion, JPMorgan Chase & Co. analysts have estimated. That came just weeks after the collapse of Greensill Capital, a lender that ran funds Credit Suisse offered to its asset-management clients.
The one-two punch has made Credit Suisse the worst-performing major bank stock in the world so far this year as a strong start for its investment bank business was overshadowed by the bank’s exposure to Greensill and Archegos, a New York-based family office.
The bank’s 1.5 billion Swiss franc ($1.6 billion) share buyback program is at risk of being paused for the second time — after first being stopped at the onset of the pandemic last year — and losses could put pressure on dividend payouts. S&P Global Ratings downgraded its outlook for the bank to negative from stable pointing to risk management concerns.
A hit to profit exceeding $5 billion would start to pressure on Credit Suisse’s capital position, according to JPMorgan. The Swiss regulator FINMA increased Credit Suisse’s requirements under its Pillar 2 buffer, after the bank warned it could incur a loss from winding down of the supply-chain finance funds linked to Greensill.
Here are the Credit Suisse leaders who will be at the center of the action in coming days and weeks:
Thomas Gottstein, chief executive officer
Thomas Gottstein
Source: Credit Suisse AG
The surprise choice to take over in February 2020, following a spying scandal that drove out Tidjane Thiam, Gottstein previously led the bank’s business in Switzerland. When he got the job, he declared that it was “time to look forward,” But Credit Suisse’s troubles have only metastisized since then.
First came a $450 million writedown on the bank’s stake in hedge fund York Capital and costs related to a longstanding legal case into residential mortgage-backed securities.
Then, Greensill’s supply-chain finance business blew up. The board of directors and regulators are looking into how Credit Suisse’s supply-chain finance funds, linked to the Greensill business, were sold to investors, including to its own wealth-management clients, and how the bank managed conflicts of interest and its business relationship with Greensill, Bloomberg News has reported.
The Archegos episode raises questions about his handle on risk management, particularly since one of his first major initiatives was merging the risk and compliance divisions to streamline and improve risk decision making.
“Risk controls still are not where they should be,” Herro said. “Hopefully this is a wake-up call to expedite the cultural change that is needed in this company.”
Lara Warner, chief risk and compliance officer
Lara Warner
Source: Credit Suisse AG
With dual Australian-U.S. nationality and a career that’s ranged from equity analyst to investment bank chief financial officer, Warner has taken a less traditional route than many of her peers to the highest echelons of risk management and Credit Suisse’s executive board. She was the highest-profile member of Thiam’s inner circle to win a spot in Gottstein’s top ranks. Her promotion to risk and compliance chief came in the reshuffle that saw the two units combined.
She’s facing some of the same tough questions as Gottstein about risk-management practices and culture following her personal involvement in signing off on a loan to Lex Greensill in October.
In an area of banking run mostly by men steeped in risk models, her more business-focused approach hasn’t always gone down well, according to conversations with about half a dozen current and former employees who spoke on condition of anonymity. Several left after she took over, while those who stayed were challenged to engage more with the business, according to people who worked with her.
“In order for the good bits of Credit Suisse to blossom, you need to get rid of bad bits and that is the risk control which has plagued this company for the better part of a decade,” said Herro.
Brian Chin, CEO of the investment bank
Brian Chin
Source: Credit Suisse AG
Along with Warner, Chin was a big winner in Gottstein’s shakeup last summer, when the trading head also won control of the investment bank after a merger of the two units.
His promotion — at least in part — was due to a turnaround in fortunes in global markets during the latter part of Thiam’s era. Now, his business is under intense pressure because of the Archegos losses.
Emissaries from several of the world’s biggest prime brokerages tried to head off the chaos before the drama spilled into public view last Friday. Credit Suisse’s idea was to reach some sort of standstill to figure out how to unwind positions without sparking panic, according to people with knowledge of the matter.
That strategy failed, prompting banks to start selling. Credit Suisse and Nomura issued profit warnings on Monday. Later in the day, Gottstein and Chin held a call with shellshocked managing directors and other executives where they said the lender was still working to figure out the size of the hit and told bankers this was a time to pull together and not focus on the potential impact on pay.
Paul Galietto, equities trading head
Galietto joined Credit Suisse in 2017 after a stint at UBS Group AG and a two-decade run at Merrill Lynch & Co. He ran Credit Suisse’s prime brokerage unit before rising to lead the equities trading division two years ago.
Galietto has been tasked with helping the investment bank in its strategy of delivering more stable results while using less capital than the trading business historically has. While revenue has stabilized after a significant decline before Galietto’s arrival, the firm ranks well behind U.S. rivals it used to surpass.
The equities business posted a 6% increase in revenue last year as clients were active in response to the pandemic, but that paled in comparison to jumps of more than 30% at some major rivals. The bank told investors in December that it still ranked fifth in cash trading and its prime brokerage, led by John Dabbs and Ryan Nelson, was in the top four in each major region.
Urs Rohner, chairman
Tidjane Thiam and Urs Rohner
Photographer: Alessandro Della Bella/Bloomberg
The Credit Suisse chairman, who has presided over one of the most tumultuous periods in Credit Suisse’s recent history during his 10-year tenure, steps down April 30, when Lloyds Banking Group Plc CEO Antonio Horta-Osorio takes over.
Herro of Harris Associates, who called for him to resign in his standoff with Thiam over the spying scandal, has already singled him out in the wake of the Archegos disclosures.
Antonio Horta-Osorio, incoming chairman
The outgoing CEO of the U.K.’s Lloyd’s Banking Group Plc, he led the bank back to private hands following a 2008 nationalization. The Portuguese national transformed Lloyds in his decade-long tenure, turning it into one of the most efficient lenders in Europe amid thousands of job cuts.
— With assistance by Marion Halftermeyer, Dale Crofts, Stefania Spezzati, Michael J Moore, and Jonathan Ferro
Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets before other large banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became apparent, according to people with knowledge of the transactions. The strategy helped limit the U.S. firms’ losses in last week’s epic stock liquidation, they said.
Losses at Archegos, run by former Tiger Asia manager Bill Hwang, have triggered the liquidation in excess of $30 billion in value. Banks were continuing to sell blocks of stocks linked to Archegos Monday, traders said.
“This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr. Hwang and the team determine the best path forward,” a company spokeswoman said in a statement Monday evening.
Archegos took big, concentrated positions in companies and held some positions in a mix of stock and swaps. Swaps are a common arrangement in which a trader gets access to the returns generated by a portfolio of shares or other assets in exchange for a fee.
Losses threatened to spill over into the so-called prime brokerage businesses that have been handling the firm’s trading. The group of large Wall Street banks includes Goldman, Morgan, Credit Suisse Group AG, Nomura Holdings Inc., UBS Group AG and Deutsche Bank AG , said people familiar with the firm’s trading.
Turkey’s currency tumbled almost 8% on Monday, putting it on course for its biggest single-day selloff since 2018, following the abrupt ouster of the central-bank governor last week.
The lira fell to as low as 8.280 a dollar from 7.219, before regaining some ground to trade at about 7.7865 a dollar, according to FactSet. Turkey’s stocks also plunged.
The turmoil comes after President Recep Tayyip Erdogan on Friday unexpectedly fired Naci Agbal, the central-bank governor who had repeatedly raised interest rates in an effort to tame inflation since his appointment in November. Foreign investors say the move renewed concerns that the central bank has lost its independence from political influence, diminishing policy makers’ credibility and sapping appetite for Turkish assets.
The new governor, Sahap Kavcioglu, Sunday tried to reassure markets by saying taming inflation is the bank’s main objective. He also pledged to foster economic stability by lowering borrowing costs and bolstering growth. Money managers are concerned that he might allow the currency to depreciate, and accept elevated inflation levels, to lower interest rates.
“We’re really trying to gauge what the level of commitment to the lira is,” said Simon Harvey, senior foreign-exchange market analyst at broker Monex Europe. “We know in Turkey that interest rates are politically sensitive.”
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.
Newsletter Sign-up
News Alert
Major world and business news, including political events, takeovers.
“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
