Banking

Deutsche spanked on AML controls; Black homeowners fall further behind

Receiving Wide Coverage …

AML setback

BaFin, Germany’s financial regulator, “ordered Deutsche Bank to take further steps to safeguard against money laundering, suggesting it still has found shortcomings at a bank repeatedly reprimanded for lacking proper controls,” the Journal reported. BaFin said Germany’s largest bank should “adopt further appropriate internal safeguards and comply with due diligence obligations, in particular with regard to regular customer reviews.”

The bank “said it has significantly improved its controls, adding it has spent about $2.4 billion and increased its anti-money-laundering team to more than 1,600 over the past two years.”

“But we are also aware that there is still work to be done,” it said.

BaFin’s move “shows Christian Sewing, chief executive, has still not sorted out all shortcomings three years after taking office,” the Financial Times said. The regulator also “broadened and extended the mandate of KPMG, which it installed as special representative in September 2018 to monitor the lender’s progress on tightening up its internal controls. The special representative’s appointment was an unprecedented move in 2018.”

A matter of urgency

New chairman António Horta-Osório “told investors on Friday that the problems at Credit Suisse were more serious than anything he had experienced in his career, and promised an urgent review of risk management, strategy and culture at the bank,” the Financial Times reported.

“I have personally worked at and led several banks in different countries and have lived through many crises,” he told the annual general meeting. “What has happened with Credit Suisse over the last eight weeks, with the U.S.-based hedge fund and the supply chain finance funds matters, certainly goes beyond that.”

“Known for digging into details, the Portuguese banker’s maiden AGM speech identified three priorities: risk management, strategy and culture,” The Wall Street Journal said. “Risk was his immediate priority, with strategy expected to take a bit more time. His warning that ‘a tough period and hard decisions lay ahead’ bodes well” for investors.

“In the coming months, he and the rest of the board are likely to consider a broad array of options,” The New York Times said. “Among the options: replacing [Thomas] Gottstein, who has been in the CEO role for 15 months; killing off some departments in the investment bank; or selling it off entirely.”

Credit Suisse “made just $17.5 million of revenue last year from Archegos Capital, the family office whose sudden collapse in March caused the Swiss bank $5.4 billion in losses,” the FT said. “The paltry fees Credit Suisse received from Archegos, whose implosion was one of the most devastating in recent history, raises further questions about the risks the lender was prepared to shoulder in pursuit of relationships with ultra-wealthy clients.”

Wall Street Journal

Falling behind

“Black homeowners are having a harder time catching up on missed mortgage payments than other borrowers. The share of Black homeowners in forbearance stood at about 11% in mid-April, more than double the overall rate and that of white borrowers, according to the Federal Reserve Bank of Philadelphia. The rate for Hispanic homeowners hovered around 8.4%.”

“The uneven economic recovery threatens to widen racial gaps in wealth and homeownership. Heading into the pandemic, the median Black household had about eight times less wealth than the average white family. In 2020, 45% of Black families owned homes, below the 75% rate of white families and 67% of Americans overall.

‘A craving to spend’

“New research offers some fresh insight” into why credit cards encourage spending. “Research on credit-card spending has tended toward the explanation that delaying payment removes a barrier to purchases in shoppers’ minds. A study published in February in Scientific Reports found evidence of another kind of trigger: When people are shopping with credit cards and see a product they like, the neural network in the brain that produces a sensation of reward perks up, which seems to create a craving to spend.”

Financial Times

Back-office exodus

“International banks are pulling capacity out of India to relieve pressure on staff suffering from the country’s intense second coronavirus wave, as regulators consult with lenders about the potential impact of the crisis. India is the world’s largest back-office and outsourcing hub, with some four million employees doing everything from answering customer-service calls to providing research for investment banks and hedge funds. Many top banks and companies have their own in-house operations in the country, while others outsource services to Indian IT giants like Tata Consultancy Services and Infosys. Banking and financial services firms are some of the biggest users of such services, and account for around 40% of TCS’ revenue.”

Bullish on bitcoin

Andreessen Horowitz, “one of Silicon Valley’s highest profile venture capital firms, is looking to raise a fund of as much as $1 billion to invest in cryptocurrencies and crypto start-ups. The new fund, Andreessen’s third that is focused on cryptocurrency investments, is aiming to raise between $800 million and $1 billion from investors. That would make it one of the largest pools of capital dedicated to crypto and potentially twice the size of its predecessor. Andreessen’s fundraising push comes as other cryptocurrency investors are raising large war chests, spurred on by a surging market in bitcoin, ethereum and other digital assets.”

But buyer beware

“Is bitcoin just a big Ponzi scheme or a genuine investment opportunity?” The FT spoke “to finance professionals inside and outside the cryptomarket and found that opinion remains sharply divided. The recent stellar performance has turned some bears into bulls. But hardcore naysayers warn that a bubble that has grown bigger is still a bubble. Regardless of whether cryptocurrencies turn out to be the digital equivalent of gold in the long run, today they are providing fraudsters with a rich hunting ground.”

Fighting back

“More than 30 of Europe’s largest banks and credit card processors are trying to create a payments giant capable of shattering a U.S.-dominated ‘oligopoly.’ ” The planned “pan-European payments service” could be “used to pay online as well as in stores, to settle bills between individual consumers and to withdraw cash at ATMs. The banks and acquirers behind the initiative currently process more than half of all payments in Europe. The project has the backing of the European Commission as well as the euro area’s financial regulators.”

“The idea is to build a European payment champion that can take on PayPal, Mastercard, Visa, Google and Apple,” said Joachim Schmalzl, the chair of the European Payment Initiative.

New York Times

We make the rules

Many banks and credit unions are still limiting the number of times customers can withdraw money from their savings accounts each month, even though the Federal Reserve changed the rule a year ago to allow unlimited withdrawals.

“The rule change, however, didn’t require banks to drop the limits. Some banks temporarily suspended their caps and accompanying fees, allowing customers unfettered use of their savings. But others kept both limits and fees in place, and continue doing so, even though the rule change appears to be permanent or at least long term. Some institutions, in their account disclosures, still cite the federal regulation as the reason for imposing the limits and charging the fees,” even though that’s not the case.

Passive resistance

“Financial institutions have a unique power to contribute to social movements — if they choose to use it,” a Times opinion piece argues. “But in their recent commitments to racial justice, financial institutions have mostly mimicked others instead of pulling on the unique levers of power that they control.”

“Celebrating Juneteenth and recruiting more Black bankers is one thing. It is quite another for financial firms to use their unique power to actively undermine the systems that perpetuate racial inequality. If they were mostly passive during the civil rights movement, what will the nation’s major financial institutions, in the face of continuing demands for racial, social and economic justice, do differently this time?”


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