Wells Fargo to Pay $185 Million Fine Over Illegal Account Openings

Even Homer Nods

Wells Fargo is generally considered one of the best run banks. It has a strong commercial banking franchise and its risk management and more limited exposure to investment banking caused it to come out on top in market value after the financial crisis.  It's chief risk officer is higher in its corporate hierarchy than any major bank's going into the financial crisis.  According to Tammy Norman of Emporia State University and Kurt Reding of Wichita State, this is a good indicator of how seriously an organization takes internal controls and risk management and has a long background in internal audit with Spirit aerospace and Boeing.  Tammy recently did a study of the relationship between organizational structure and internal controls.  Kurt is the author of the leading international textbook in the field.  So it is a surprise that Wells Fargo has had an  internal lapse in its commercial bank of all places.  The bank faces a $185 million fine illegal sales practices.  It found hundreds of employees tried to meet ambitious cross-selling goals by opening accounts without customers' permission or even their knowledge. following widespread  including opening accounts for customers without their knowledge. 

In this video, WSJ reporter Emily Glazer joins Lunch Break to discuss the story.  Photo: Getty

Who Needs Horatio Alger, We Have Hamilton!

Peggy Noonan recently reviewed  a hip hop play.  "Hip hop?" you day, "Has she flipped her wig?"

Actually she has tipped her wig figuratively to a Broadway biography of one of our bewigged founders: Washington's right hand man, a triumvir of the Federalist Papers, and our first Treasury Secretary: Alexander Hamilton.

The U.S. economy achieved its takeoff into sustained economic growth by 1840, long before all but two countries in the world.  Yet a betting man or woman in 1780 would have found little to choose among our new fledgling republic strung along the Atlantic compared to Argentina, Canada, Mexico, and Brazil in terms of who would have been economically successful. Richard Sylla, perhaps our preeminent financial historian of U.S. financial markets, makes a compelling case that Hamilton's financial reforms enabled the emergence of a sophisticated financial system.  That financial system financed the young republic's emergence as an economy.  Thus economic takeoff took place here and not somewhere else.

Alexander Hamilton is one of my favorite Founding Fathers.  More to the point he exemplifies what makes America America and nowhere is it better expressed than in this very 2015 Broadway musical, "Hamilton"  Listen to Lin-Manuel Miranda, its playwright and star, as he performs "The Hamilton Mixtape" at the White House Evening of Poetry, Music, and the Spoken Word on May 12, 2009. He is accompanied by Alex Lacamoire:




As always, Peggy Noonan expressed it well: "Why did they weep? Why was everyone so moved?
Because it hits your heart hard when you witness human excellence. Because the true tale of how an illegitimate, lowborn orphan from the West Indies went on to become an inventor of America is a heck of a story. And because it is surprising yet perfect that that story is told in a hip-hop/rap/rhythm-and-blues/jazz/ballad musical whose sound is pure 2015 yet utterly appropriate to the tale."

Miranda read Ron Chernow's biography and wept because he identified with a great story of a great man who overcame all odds, yet a man made with feet of clay. Read it and drink in the story of our country.   

If Americans in 2015 can listen to this tale without a dry eye, then we know the revolution has spent its course and it is time to learn Mandarin. 

Is it Time to Buy COCOs?

Is there value in European banks?

Oct 1, 2013 : Are European banks becoming attractive again? Philippe Bodereau, managing director at Pimco, explains to John Authers where to avoid, and suggests that the UK and Switzerland may offer the most promising returns.

When Will They Ever Learn? II

“The Big Picture” blogger and Fusion IQ CEO Barry Ritholtz looks back at the events of 2008 and makes the case for the true legacy of the financial collapse and ask, "Did Anyone Learn From the Financial Crisis?"

IT & Banks

What has IT got to Marketing?  Or banking for that matter?  With a bank, when you think infrastructure and operations, think IT.  

 

In this February 6th, 2013 video, Butch Leonardson, Boeing Employees' Credit Union's chief information officer, tells Paul Taylor, the FT's Connected Business editor, about the opportunities and challenges facing the CIO of this leading credit union, and how IT supports BECU's strategic objectives.  The video lasts 5 minutes and 17seconds.

Stuttering Santander

In this FT video (2m 41sec), Stuart Kirk and Oliver Ralph discuss Spain's premier bank, Santander.  Globalizing itself with major invasion into Latin America primarily, it has gone all out for growth over the past decade.  This diversification out of its home market has proven wise.  Spain is doing badly with 20% unemployment.  The path to earnings growth has not been a Yellow BRIC Walk. Its emerging market hope, Brazil, is falling short of expectations. 

 

 

Santander Takes a Big Writedown on Its Spanish Real estate Loans

10/25/2012
Banco Santander said profit fell after it amassed provisions against real-estate losses in Spain and as economic activity stuttered in some Latin American markets. Dow Jones's Margot Patrick reports:

Visa Raids JPMorgan for Its CEO

Jamie Dimon has built a powerhouse in JPMorganChase and demonstrated that good management can weather financial crises and prosper.  Visa, which went public a few years ago, poached some of Dimon's talent to head the payments giant.  In this October 25th video Robin Sidel on Markets Hub reports Charles Scharf is stepping out of James Dimon's shadow and into Visa's executive chair:




Sidel tells us "Mr. Scharf is well-known within J.P. Morgan as a methodical, decisive and sometimes prickly executive who doesn't like loads of bureaucracy. Those traits may shake up employees at Visa, which relies heavily on meetings and group discussions, according to people familiar with Visa's corporate culture."  Furthermore, in his new job, "Mr. Scharf's job will be to manage delicate relationships with millions of merchants, and to steer through rising competition from nontraditional payment companies such as eBay Inc.'s PayPal division."

Bank of America to Fannie Mae: If That's the Way You Want to Do Business, We Won't Do Business with You!

Over a the two decades before the Housing bubble burst, Countrywide Financial became Fannie Mae's biggest supplier of mortgages to securitize. Gretchen Mortgenson and Joshua Rosner document the symbiotic relationship between Angelo Mozilla's Countrywide and Fannie in Reckless Endangerment.  Their relationship was both financial and political as they built up the financial industrial complex that drove the financial system to ruin.  Although Mortgenson and Joshua Rosner demonstrate how these two firms worked with the politicians' and the government's aiding and abetting to degrade credit quality, Fannie is now owned by the federal government.  Under this new management, Fannie wants to only buy mortgages from Bank of America (Countrywide was rescued by Bank of America) on the condition that it can sell it back to the bank if they do not conform to its underwriting standards ex post facto. 

You May Make the Rules, But I Do Not Have to Play the Game

Bank of America has said "No deal!"  It thought it was helping out when it rescued Countrywide only to be hit with one law suit after another from the government.  Bank of America has learned how the government treats those who give the country a helping hand: it bites it until it bleeds.  Exposing oneself to unknown and unlimited liability is not the path to success in banking.

WSJ's David Benoit reports:

Take Your Losses Upfront: Banco Santander Takes a 3.1 Billion Euro Hit

Profits Tumble at Banco Santander 1/31/201
Spain's largest bank, Banco Santander, announced that its profits were down by 98% in the fourth quarter of last year. It is catching a jump on regulators by writing its losses down earlier.

In this video, Joe Ortiz of DJ Banking Intelligence tell us why.

The Birth of a New Acronym

I know of an agency in Washington that thought its status diminished by having a FLA, so it used a TLA instead. ("What's that?" you ask. An FLA is a four letter acronym, while a TLA is a three letter acronym.)

Well the would is "enriched" by a new acronym: "Sifi." Apparently one does not have to do it in all caps. (We really do need some regulation!) I read in the Financial Times, "Bank of China talks up its Sifi status."I was quite baffled. "Sifi?" I asked. The FT explained the acronym as “systemically important financial institutions.” (I caught it on the second reading.)

Tom Hoenig Nominated to Be the Vice Chair of the FDIC

Wow!

I do not know to what party Dr. Thomas Hoenig belongs, but he has been great on the FOMC (the Federal Open Market Committee that determines monetary policy.)  President Obama has nominated him to be the number two official at the Federal Deposit Insurance Corporation (FDIC) which guarantees bank deposits.  The FDIC also is one of the agencies that examines banks for soundness.

Tom Hoenig has been a staunch critic of the "Too Big to Fail" syndrome in American bank supervision.  He has been seemingly a Cassandra warning of the bubble in farmland prices.  Hopefully his arms will not be chained when he raises them to prays for policies to address the problem. 

On the FOMC, Hoenig has voted for raising rates.  Knowing that we are creating new bubbles rather than stimulating new investment in real projects creating real jobs, he has dissented from the prevailing majority.  What business owner in its right mind would invest in a risky business project when there is free money to lever up holdings of financial assets made risk free by the Bernanke put?  Why subsidize investment banking bonuses? And he has not kept quiet.  As Michelle Lucci pointed out over a year ago, "Kansas City Federal Reserve Bank President Thomas Hoenig has been recently speaking publicly about his desire for an increase in the federal funds rate, sooner rather than later, and also about his concern for community banks and the drag on earnings from commercial real estate loans."

Scott Canon at the Kansas City Star warns "Hoenig is ... a provocative selection to join [the FDIC's] board of directors."  Three cheers for President Obama on this one.  Even Ron Paul should be cheering. He would be available should a President Cain need a Fed Chairman.

Turmoil, Curriencies, & Banks

The Financial Times  reports on currency movements and the effects on banks in these two videos:

Currency traders flex their muscles

According to the FT, " [a]s the world's reserve currency spreads its wings, many emerging markets and commodity currencies are getting caught in the downdraft of the risk-off trade in favour of the US dollar as a safe haven." (2m 10sec)

Dollar deluge shores up banks

In this second video, the Ft makes a crucial distinction, to wit: "The promise of unlimited dollars from central banks has buoyed shares in Europe's banks. However, as James Mackintosh, investment editor, warns, the liquidity worry may offer relief but the underlying solvency threat of sovereign default remains." (3m 43sec)

Jamie Dimon Calls Basel III "Anti-American"

Tom Braithwaite in New York and Patrick Jenkins in London report JPMorgan Chases' CEO, Jamie Dimon, "was supportive of forcing banks to have more capital but argued that moves to impose an additional charge on the largest global banks went too far, particularly for American banks"  in an interview in the Financial Times.  Read why our favorite banker is always good copy.

He also answered some tough questions in another and was particularly critical of the strident narrative prevailing in Washington and the media about banks and the financial crisis in a third article.

All three stories articles are worth reading.

In October, 2010, Ed clarks talks About His Success in Building a Great American Banking Franchise

Why does going after deposits and loans; giving great customer service; and expanding where the opportunity arises sound like this bank is marching to a different drummer?

Toronto Dominion had about 1,000 branches in the U.S. early in the financial crisis and now has 13,000. Dull grey flannel banking earns Ed Clark the Canada’s Outstanding CEO of the Year award!


Oct. 26 (Bloomberg) -- Edmund Clark, chief executive officer of Toronto-Dominion Bank, talks with Bloomberg’s Melissa Long about the outlook for his company. Clark, speaking from the Economist magazine's Buttonwood Gathering in New York, also discusses the prospects for the U.S. economy. (Source: Bloomberg)

Ed Clark on TD

Bloomberg Interviews Toronto-Dominion's Ed Clark

June 3 (Bloomberg) -- Edmund Clark, chief executive officer of Toronto-Dominion Bank, talks about the bank's performance and lending in Canada, its U.S. growth and retail bank customer service. Toronto-Dominion Bank is Canada’s second-largest bank. Clark speaks with Lisa Murphy on Bloomberg Television's "Fast Forward." (Source: Bloomberg)

Jamie Dimon is our favorite banker. His bank, JP Morgan-Chase, is one of three banks that come out big winners from the financial crisis. The other two are Toronto Dominion (TD Bank in the U.S.) and Wells Fargo. (Bank of America made most of the right moves and was forced into the Merrill Lynch merger and the jury is still out whether they should be added to the list.)

If you want to hear the world's top banking talking fast and not hiding under a grey flannel suit, fire up this interview with CNBC:





In the interests of full disclosure, the Harris family owns modest amunts of JP Morgan stock, some of which was bought in March, 2009.

Future of Investment Banks & Bonuses

On December 17th, 2010, the Financial Times asks: As regulators and politicians seek to tighten their grip on bonuses and leverage, what does the future hold for investment banks after the financial crisis? and how do food and clothing companies, as well as governments, react to rocketing input prices? 

In the chair, analysis editor Frederick Studemann debates the issues with FT colleagues Megan Murphy, investment banking correspondent, Martin Sandbu from the leader writing team and consumer industries editor Louise Lucas.

The video runs 16 minutes and 28 seconds.

Jamie Dimon, the boy from Queens, Mammon Among Friends' 2009 Banker of the Year, and hero of the financial crisis, has taken on Washington.   "Mr. Dimon Goes to Washington" Robin Sidel and Damian Paletta wrote last Wednesday that far from keeping a low profile in our bankerphobic time, "he's spent the past year launching his own campaign to stave off government proposals that would rein in profits, boost consumer protections and impose new fees."

Here is Robin Sidel discussing what they wrote with Kelly Evans and Evan Newmark.

Henrique de Campos Meirelle On Brazil's Success Through the Financial Crisis

Henrique de Campos Meirelles is the Governor of Banco Central do Brasil. Maybe Ben Bernanke could learn a thing or two from this interview with the economist: