Finance Brief: Wells Fargo Lays Out Costs Tied to Sales Scandal

Washington Brief

  • President Donald Trump is preparing to nominate J. Christopher Giancarlo, the Commodity Futures Trading Commission’s acting chairman, as the next head of the derivatives regulator. (The Wall Street Journal)
  • The Senate Health, Education, Labor and Pensions Committee rescheduled Andy Puzder’s confirmation hearing for Feb. 16. The fast-food chief executive is Trump’s pick to lead the Labor Department. (The Washington Post)
  • Federal Reserve general counsel Scott Alvarez said he plans to retire from the central bank this year. (MarketWatch)

Business Brief

  • Legal expenses from the cross-selling scandal at Wells Fargo & Co. are estimated to cost the bank as much as $60 million per quarter for the next several quarters. (American Banker)
  • Wells Fargo is expected to withhold 2016 bonuses for senior executives, including Chief Executive Tim Sloan, as a result of the cross-selling scandal. (Bloomberg News)
  • A federal judge in Texas ruled against businesses that challenged the Labor Department’s rule governing retirement investment advice. The decision, which the groups can appeal, does not affect separate Trump administration plans to delay the regulation. (Reuters)

Chart Review

Events Calendar (All Times Local)

Thursday
WITA event on NAFTA 9 a.m.
Friday
No events scheduled

 

General

Labor nominee Puzder’s hearing scheduled for next week
Jonnelle Marte, The Washington Post

After multiple delays, labor secretary nominee Andrew Puzder has a new date for his confirmation hearing: Feb. 16. The fast-food CEO has completed his ethics review and submitted his paperwork to the Senate, according to a spokesman for Sen. Lamar Alexander (R-Tenn.), the chairman of the Senate HELP committee.

Puzder to quit CKE and may give up bonus if confirmed as Labor chief
Julia Horowitz, CNN

Andrew Puzder, President Trump’s nominee to lead the Labor Department, says he will step down as chief executive of CKE Restaurants and might give up his 2016 bonus if the Senate confirms his nomination. The fast food exec, who currently runs Carl’s Jr. and Hardee’s restaurants, explained how he would avoid financial conflicts of interest in a letter to government ethics officials.

Group questions whether CFPB chief broke records laws
Sylvan Lane, The Hill

A watchdog group says the chief of the Consumer Financial Protection Bureau (CFPB) might have violated federal records laws by not preserving work-related text messages. The Cause of Action Institute told CFPB Director Richard Cordray he may have violated federal records laws in a letter sent Wednesday.

Why hasn’t Trump fired CFPB’s Cordray?
Kate Berry, American Banker

Consumer Financial Protection Bureau Director Richard Cordray has managed to keep his job for more than two weeks into a Trump administration, despite repeated calls by House Republicans for him to be fired. With President Donald Trump now testing the extent of his executive power with the travel ban, some experts said the president is being advised to hold off on firing Cordray to get the Supreme Court to rule on the extent of the president’s executive powers.

Europe Stocks Extend Asia Momentum as Bonds Climb: Markets Wrap
Jeff Sutherland and Samuel Potter, Bloomberg News

Positive momentum from Asian stocks carried through into Europe after good earnings from Societe Generale SA offered financial shares some relief. Futures on the S&P 500 were little changed after the index edged up 0.1 percent on Wednesday.

Banking

Wells Fargo’s costs mount in wake of sales scandal
Kevin Wack, American Banker

The tab from the phony-accounts fiasco at Wells Fargo continues to grow. Speaking to analysts and investors Wednesday, Chief Financial Officer John Shrewsberry projected that legal costs and other expenses related to the scandal will swell to between $50 million and $60 million and remain at that level for the next several quarters.

Wells Fargo Said Likely to Withhold Bonuses for Top Executives
Laura J Keller, Bloomberg News

Wells Fargo & Co. will probably withhold 2016 bonuses for senior leaders including Chief Executive Officer Tim Sloan after the bank’s business and stock were slammed by a bogus-account scandal, according to a person briefed on the talks.  The company’s board discussed the move in late January and is likely to make a decision by the end of this month, potentially eliminating annual incentive awards paid in cash or equity, the person said, asking not to be identified because the talks are confidential.

The Fed’s top lawyer — and Elizabeth Warren target — to retire
Greg Robb, MarketWatch

Scott Alvarez, the top lawyer at the Federal Reserve who ran afoul of Sen. Elizabeth Warren over bank regulation in the wake of the financial crisis, will retire later this year, the central bank announced Wednesday. Alvarez was described by the New York Times as the “power behind the throne” at the Fed.

Community Banks Hopeful as Lawmakers Target Financial Rules
Joyce M. Rosenberg, The Associated Press

Community banks and small businesses are optimistic about changes the Trump administration and Congress have promised to laws that tightened supervision of the banking industry after the 2008 financial crisis. The number of small, local banks has declined since the Great Recession, a change that advocates feel was intensified by the paperwork the increased oversight entails.

Banks Can’t Wait to Wipe This Complaints Database
Shahien Nasiripour, Bloomberg News

Johnson Tyler, a longtime legal aid attorney in Brooklyn, often spends his days battling financial companies on behalf of aggrieved low-income clients. Not much has changed in the wake of the Great Recession, despite new federal rules meant to better protect households from financial misconduct, except in one area: When Tyler complains about a large company, the company actually responds.

Banks Are Finally Sprouting Anew in America
Rachel Witkowski, The Wall Street Journal

Startup banks are close to coming off the endangered species list. Eight groups have filed applications in recent months with the Federal Deposit Insurance Corp. to open new banks, spurred by an improving economy and an expected deregulatory push by Republicans in Washington.

Financial Products and Investments

Trump Preparing to Nominate Commodity Futures Trading Commission’s Giancarlo as Chair
Andrew Ackerman, The Wall Street Journal

The Trump administration is preparing to nominate J. Christopher Giancarlo as chairman of the Commodity Futures Trading Commission, according to people familiar with the matter, elevating the former brokerage executive to the full-time head of the top U.S. derivatives regulator. If confirmed by the Senate, Mr. Giancarlo is expected to adopt a more industry-friendly approach to overseeing banks and other financial firms in the multi-trillion-dollar derivatives market.

U.S. court upholds Obama-era retirement advice rule
Sarah N. Lynch, Reuters

A U.S. federal judge on Wednesday upheld an Obama-era rule designed to avoid conflicts of interests when brokers give retirement advice, in a possible setback for President Donald Trump’s efforts to scale back government regulation. The stinging 81-page ruling comes just days after Trump ordered the Labor Department to review the “fiduciary” rule – a move widely interpreted as an effort to delay or kill the regulation.

Investors pile into risky bonds in bet on Trump economy
Eric Platt, Financial Times

Investors are piling into some of the riskiest bonds sold by US companies as they bet on President Donald Trump delivering on his promises of a stronger economy, lower taxes and less regulation. Demand for junk-rated bonds has driven yields on debt with the lowest quality credit rating down towards 10 per cent as more than $10bn has flowed into funds that invest in the asset class since the start of December.

Goldman Sachs hedge fund folding London operations, shifting staff to U.S.
Maiya Keidan and Olivia Oran, Reuters

Goldman Sachs Group Inc’s (GS.N) hedge fund Goldman Sachs Investment Partners (GSIP), which was one of the largest-ever hedge fund launches in history, is closing its London operations and shifting staff members to New York, four sources told Reuters. About eight staff members who made up the London team were recently told to move to Goldman’s Battery Park City headquarters or find a new job internally, said the sources.

JPMorgan Accused of Nickel-and-Diming Jurors on Debit Cards
Christian Berthelsen, Bloomberg News

For some people, jury duty is a dreaded American civic obligation. Now, JPMorgan Chase & Co. is adding another unwelcome element: banking fees. In a handful of jurisdictions, the biggest U.S. bank by assets has taken over administration of the juror-compensation system, issuing debit cards instead of the age-old paper checks.

Housing and GSEs

House reintroduces bill to end “FICO monopoly” at Fannie Mae and Freddie Mac
Brena Swanson, HousingWire

This week Reps. Ed Royce, R-Calif., Kyrsten Sinema, D-Az., and Terri Sewell, D-Al., introduced H.R. 898, the Credit Score Competition Act, which enables the GSEs to consider alternative credit scoring models when making mortgage purchasing decisions.

Taxes

Dems: Don’t repeal offshore tax rules
Naomi Jagoda, The Hill

Democrats on the House Ways and Means Committee are urging their colleagues to oppose a resolution that would repeal Obama administration rules aimed at curbing offshore tax deals. “These regulations are intended to combat aggressive corporate tax planning techniques that, rather than serving an economic purpose, are used by some corporations to avoid taxes,” the Democratic tax-writers wrote in a letter Wednesday to their colleagues.

The GOP tax plan could mean a big break for some of Donald Trump’s least favorite people
Max Ehrenfreund, The Washington Post

As a presidential candidate, Donald Trump lambasted hedge-fund managers for paying too little in taxes. “The hedge-fund guys are getting away with murder,” Trump told CBS News in 2015. “They’re paying nothing, and it’s ridiculous.”

Financial Technology

China Tells Bitcoin Exchanges to Follow Forex Rules
Chao Deng, The Wall Street Journal

China’s central bank issued its harshest warning yet to the domestic bitcoin industry, saying that platforms trading the virtual currency risk being shut down if they skirt rules on money laundering and foreign exchange. The People’s Bank of China delivered the warning to nine bitcoin trading platforms in a meeting on Wednesday, reminding them about potential legal, policy and other risks.

Bitcoin price falls as Chinese authorities meet with exchanges
Joseph Adinolfi, MarketWatch

Bitcoin prices retreated Wednesday following reports that China’s central bank is holding a closed-door meeting with several local cryptocurrency exchanges.

A Message from the Electronic Payments Coalition:

The Durbin Amendment is a failed policy and a broken promise. The worst part? Consumers have gotten screwed, failing to see billions of dollars in savings as promised. It is time to call out the retailers and repeal this merchant markup. Learn more from the Electronic Payments Coalition.

Opinions, Editorials and Perspectives

How We’ll Stop a Rogue Federal Agency
Jeb Hensarling, The Wall Street Journal

The Obama presidency placed no greater burden on America’s growth potential than the avalanche of regulations that smother the U.S. economic system. The most destructive and dangerous of the new regulatory bureaucracies created by the Democrat-dominated 111th Congress is the Consumer Financial Protection Bureau.

The (Sensible) Fine Print on Trump’s Regulation Order
Cass R. Sunstein, Bloomberg View

The first weeks of the Trump administration have not exactly been characterized by an excess of regular order. So there’s special reason to applaud a document it released last week that helps to make sense of one of the president’s controversial actions — an unprecedented executive order limiting regulation.

Why President Trump is not (yet) rolling back Dodd-Frank
John Patty, Vox

The Dodd-Frank Wall Street Reform and Consumer Protection Act (or, more simply, “Dodd-Frank”) was passed in 2010 in response to the 2007-2010 financial crisis. It centralized and strengthened federal regulatory control of financial services industries. It is one of the most controversial and important pieces of legislation in decades.

President’s Opening Financial Services Salvo Is On Target, But There’s Much More To Be Done
Norbert Michel, Forbes

On January 30, President Trump pledged that his Administration would “be doing a big number on Dodd-Frank.” Four days later, just two weeks into his administration, the President issued two executive orders designed to get that process going.

Is corporate ‘short-termism’ a myth?
Robert J. Samuelson, The Washington Post

You’ve heard the criticism. Too many American corporate managers are addicted to “short-termism.”

A Message from the Electronic Payments Coalition:

What is the Durbin amendment? Broken promises worth $42 billion to big box retailers. Learn about the merchant markup and how it is hurting consumers from the Electronic Payments Coalition.

Research Reports

Monthly Complaint Report
Consumer Financial Protection Bureau

As of January 1, 2017, the CFPB has handled approximately 1,080,700 complaints, including approximately 22,900 complaints in December 2016.

Briefings

Finance Brief: Week in Review & What’s Ahead

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. While the report does not call for a full repeal of Volcker Rule limits on proprietary trading, it recommended exempting small institutions from the Dodd-Frank regulation.

Finance Brief: CFPB Proposes Changes to Prepaid Card Rule

The Consumer Financial Protection Bureau announced plans to make changes to its prepaid card rule, with public comments on the proposals due within 45 days. The CFPB’s proposals would adjust the rule to require consumers register any prepaid cards before filing a complaint, and would allow providers to send disclosure forms to consumers digitally in some cases.

Finance Brief: Warren Says Democrats Open to Loosening Regulations for Community Banks, Credit Unions

Sen. Elizabeth Warren (D-Mass.) said Senate Democrats are open to working with Republicans on “targeted” measures that would ease regulations affecting community banks and credit unions. Warren, who has shown little willingness to work with the GOP on loosening financial regulations, said she remains opposed to proposals that would limit consumer protections or weaken regulations for big banks.

Finance Brief: Treasury Department Recommends Changes to CFPB, Volcker Rule

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. The report does not call for a complete repeal of Volcker Rule limits on proprietary trading but instead proposes exempting small institutions from the Dodd-Frank regulation.

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