Finance Brief: Wells Fargo Plans to ‘Get a Little Bit Smaller’ in Wake of Accounts Scandal


Government Brief

  • Consumer Financial Protection Bureau Director Richard Cordray took issue with Acting Comptroller of the Currency Keith Noreika’s criticism of the CFPB’s new forced arbitration rule. Noreika said he might challenge the rule through an interagency process, and Cordray responded by saying that no one from OCC had objected to the rule, which limits banks’ use of contracts that curb consumers’ ability to file class action lawsuits. (Credit Union Times)
  • Cordray should resign if he is planning to end his term early to run for governor of Ohio, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said. Cordray’s term is scheduled to expire in July 2018. (American Banker)
  • Charitable foundations last week ramped up their efforts to expand the federal tax deduction for charitable giving by holding meetings with administration officials as high ranking as Vice President Mike Pence. The House Republican tax plan would retain the charitable-giving deduction, but its expansion of the standard deduction has foundations and nonprofits advocating for a “universal” charitable deduction that doesn’t require itemizing donations on tax filings. (The Hill)

Business Brief

  • Wells Fargo & Co. plans to “get a little bit smaller” in the wake of its cross-selling scandal, said Chief Financial Officer John Shrewsberry. Business units that could be on the chopping block, he said, include “smaller things” valued in the hundreds of millions of dollars. (Financial Times)
  • Wells Fargo said it laid off 2,000 workers last quarter, marking the bank’s biggest staff reduction since 2013. (The Charlotte Observer) The bank also lost 130 advisers from its investment advisory unit, bringing the total of advisers who have left in the wake of the accounts scandal to 559, or 3.7 percent of the division since Sept. 30. (InvestmentNews)
  • JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon criticized the lack of progress in Washington on issues like tax and regulatory reform, saying it adversely affects U.S. standing on the global business stage. Dimon used profanity on an earnings call to refer to the “stupid” things Americans deal with on a daily basis. (CNBC)

Chart Review

Events Calendar (All Times Local)

Monday
SEC’s Piwowar speaks at Heritage Foundation 12 p.m.
National Retail Federation Advocates Summit 5 p.m.
Tuesday
Vice President Pence speaks at NRF conference 10 a.m.
Senate Banking Committee nomination hearing 10 a.m.
House Financial Services subcommittee hearing on public companies, corporate governance 10 a.m.
House Financial Services subcommittee hearing on managing terrorism finance risk 2 p.m.
Wednesday
National Retail Federation Advocates Summit 8 a.m.
U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness discussion on CFPB arbitration rule 8:30 a.m.
House Financial Services subcommittee hearing on oversight of independent agencies 10 a.m.
House Financial Services subcommittee hearing on North Korea finance access 2 p.m.
Thursday
National Retail Federation Advocates Summit 8:30 a.m.
House Financial Services subcommittee hearing on monetary policy vs. fiscal policy 9:30 a.m.
Senate Banking Committee hearing on housing finance reform 10 a.m.
Friday
No events scheduled

General

CFPB’s Cordray Says OCC Has No Right to Challenge Arbitration Rules
David Baumann, Credit Union Times

CFPB Director Richard Cordray fired back at Comptroller of the Currency Keith Noreika Friday, saying that the OCC cannot challenge the agency’s arbitration rules through a little-used process. Cordray said that the OCC did not meet the statutory requirements needed to challenge the CFPB’s rules through the Financial Stability Oversight Council.

If CFPB head won’t serve full term, he should resign: Hensarling
Kate Berry, American Banker

Rep. Jeb Hensarling on Friday continued the drumbeat of Republican attacks on the head of the Consumer Financial Protection Bureau, this time saying Richard Cordray should resign if he will not commit to serving his full term. “If Director Cordray wishes to issue midnight rules, to hire or adjust the status of CFPB employees, to obligate CFPB funds, or to accelerate agency investigations, he should first commit to serving his full term,” Hensarling said in a release.

TPP, the Trade Deal Trump Killed, Is Back in Talks Without U.S.
Motoko Rich, The New York Times

When President Trump pulled out of his predecessor’s signature trade deal on his first full weekday in office, the 11 other countries that had negotiated the pact were left wondering if years of work had just gone down the drain. This week, those countries indicated that they wanted to press ahead with the so-called Trans-Pacific Partnership, or TPP, a sweeping multinational trade agreement that had originally been sold as a way to tether the United States more closely to East Asia and to create an economic bloc capable of standing against an increasingly muscular China.

‘Herculean’ U.S.-China Trade Deal Gets Less-Than-Heroic Reviews
Jacob M. Schlesinger et al., The Wall Street Journal

When Commerce Secretary Wilbur Ross announced in May the “herculean accomplishment” of extracting Chinese promises to open swiftly long-restricted markets in finance and agriculture, he pronounced the actions “more than has been done in the whole history of U.S.-China relations on trade.” Now, as the two countries mark Sunday’s deadline for completing the agreements, affected American companies say Beijing has met the letter of its pledges, yet fallen short of the spirit.

Trump’s trade warrior prowls the West Wing
Nancy Cook and Andrew Restuccia, Politico

Peter Navarro, one of the White House’s top trade advisers, is widely viewed throughout the West Wing and Capitol Hill as a prickly personality with extreme policy ideas. But he has nonetheless emerged as an influential force in the White House who appeals to President Donald Trump’s protectionist impulses.

Data in Driving Seat as Metals Rally, Stocks Swing: Markets Wrap
Samuel Potter, Bloomberg

Economic data was the key driver for markets on Monday, with industrial metals and mining companies rallying on better-than-expected Chinese growth and stocks fluctuating after European inflation figures. U.S. stock futures gained 0.1 percent.

Banking

Wells Fargo prepares to shed more businesses
Alistair Gray, Financial Times

Wells Fargo is preparing to jettison more businesses as the US bank with $1.9tn in assets works to restore investor confidence in the wake of the sham accounts scandal. “We get a little bit smaller, a little bit less complex and we can focus on what we’re good at,” John Shrewsberry, chief financial officer, told the Financial Times. “We could be more focused.”

Wells Fargo slashes thousands of jobs as it recovers from sales scandal
Deon Roberts, The Charlotte Observer

Wells Fargo said Friday it eliminated more than 2,000 jobs last quarter, its biggest drop in four years, as the San Francisco-based bank pushes forward with efforts to slash costs following a scandal over fake accounts. The decline during the three-month period that ended June 30 came as Wells Fargo looks to trim billions of dollars in expenses under previously announced initiatives.

Wells Fargo Says Issuing Fewer Customer Stats Helps Staff Focus
Laura J. Keller, Bloomberg

Wells Fargo & Co. is no longer releasing the customer account figures it started disclosing after a scandal in September erupted over employees creating fake accounts to reach sales goals. Wells Fargo had been reporting 19 measures of client activity monthly, including the number of retail bank customers opening and closing checking accounts or applying for credit cards.

Jamie Dimon blows up at DC’s dysfunction, says he’s tired of ‘listening to the stupid s—‘
Evelyn Cheng, CNBC

JPMorgan Chase CEO Jamie Dimon expressed frustration at the U.S. federal government during the company’s earnings conference call Friday. “It’s almost an embarrassment being an American citizen traveling around the world and listening to the stupid s— we have to deal with in this country,” Dimon said in response to an analyst question.

The Fed Is About To Get Trumpier
Ben Casselman et al., FiveThirtyEight

Yellen may be yet another powerful person with a New York accent, but she is perhaps the least Trump-like figure in Washington: measured, cautious, her every word chosen to avoid unintended consequences. But the Fed could soon become a lot more, well, Trumpian.

Financial Products and Investments

Wells Fargo sustains more adviser losses following banking scandal
Greg Iacurci, InvestmentNews

The steady flight of financial advisers from Wells Fargo & Co. following the revelation of a banking scandal at the firm last fall continues. The company’s retail brokerage, Wells Fargo Advisors, lost 130 advisers in the second quarter.

Ex-Wells Fargo trader wins appeal in SEC insider trading case
Nate Raymond, Reuters

The U.S. Securities and Exchange Commission has affirmed the dismissal of an administrative case against a former Wells Fargo & Co trader after two commissioners split on whether the evidence proved he engaged in insider trading. The ruling on Thursday came in an appeal by the SEC’s enforcement division of an administrative law judge’s 2015 ruling dismissing the case against Joseph Ruggieri, who was accused of trading on tips supplied by a Wells Fargo analyst.

Appeals court finds GOP groups lacked standing to bring G-37 challenge
Jack Casey, The Bond Buyer

A three-judge appeals court panel has dismissed a challenge from three Republican groups to the Municipal Securities Rulemaking Board changes to Rule G-37 that the groups had alleged restrict the political contributions of municipal advisors, saying the groups lacked standing to bring the case. The judges from the U.S. Court of Appeals for the Sixth Circuit in Cincinnati issued its decision on Thursday after hearing oral arguments on the matter in early May.

Dow Jones Inadvertently Exposed Some Customers’ Information
Robert McMillan, The Wall Street Journal

An error by Dow Jones & Co. in configuring a cloud-computing service left addresses and other information about subscribers to some of its products, including The Wall Street Journal, exposed to possible unauthorized access. About 2.2 million subscribers’ records were affected, a Dow Jones spokesman said.

Wealth Advisers Set Up Shop With a Shared Back Office
Landon Thomas Jr., The New York Times

Much as Amazon has disrupted the retail industry by revolutionizing shopping habits, Schwab and firms like it have empowered a fast-growing vanguard of wealth advisers who offer independent and conflict-free financial advice by relying on easy-to-use technology. Now, sitting on more than $4 trillion in assets, registered investment advisers are posing a direct threat to the old model of huddling with brokers from Merrill Lynch or Morgan Stanley and following their advice — for a hefty fee, usually — about which stocks, bonds or mutual funds to buy.

Housing and GSEs

CFPB proposes HMDA changes for community banks and credit unions
Brena Swanson, HousingWire

The Consumer Financial Protection Bureau released a proposed rule on Friday to reassess a section included in the Home Mortgage Disclosure Act (HMDA) that pertains to community banks and credit unions. As it stands, the rule is set to take effect in January 2018.

Taxes

Charities push GOP for tax reform change
Naomi Jagoda, The Hill

The nonprofit sector is pressuring lawmakers and the White House to protect the charitable tax deduction. The tax-reform plans released by the Trump administration and House Republicans would keep the deduction for charitable donations, but also increase the size of the standard deduction, likely reducing the number of people who would use the tax preference.

Financial Technology

US Congressman: Cryptocurrencies Need Tighter Rules
Wolfie Zhao, CoinDesk

A Republican member of the US House of Representatives has called for tighter anti-money laundering controls for digital currencies. Congressman Dana Rohrabacher was speaking during a floor debate on the 2018 National Defense Authorization Act, a funding measure for the US military that was ultimately passed earlier today.

Tezos raises $232 million for new cryptocurrency project
Brian Patrick Eha, American Banker

Tezos, a new cryptocurrency network that could compete with Ethereum, raised a record-breaking $232 million in a nearly two-week-long token sale that closed on Thursday. Although the first version of its network has yet to launch, Tezos has piqued the interest of major investors and cryptocurrency experts.

Opinions, Editorials and Perspectives

Jamie Dimon Goes Off
Editorial Board, The Wall Street Journal

Jamie Dimon sure knows how to liven up an earnings call. While reporting quarterly results on Friday, the J.P. Morgan Chase CEO let loose with a high-quality harangue against the political class and Washington gridlock that drives down economic growth and hurts the people at the bottom of the income ladder. “Since the Great Recession, which is now eight years old, we’ve been growing at 1.5% to 2% in spite of stupidity and political gridlock,” said the dean of Wall Street CEOs, who was just warming up.

Forcing Banks to Fight Fair
Editorial Board, The New York Times

A powerful rule finalized last week by the Consumer Financial Protection Bureau will allow consumers to join together in class-action lawsuits against banks, credit card companies and other lenders over price gouging, predatory lending, abusive loan terms and other mistreatment. Some congressional Republicans have vowed to use special legislative procedures to repeal the rule, which could take effect next year.

The CFPB rule on class-action suits is a win for all — even if it doesn’t seem like it
Michelle Singletary, The Washington Post

The Consumer Financial Protection Bureau may be under attack from Republicans, but if it’s going out, it’ll be like a lion, not a lamb. In issuing a new rule, the watchdog agency took away a powerful tool that financial institutions used to avoid being sued by groups of consumers.

True populist economics: Save this consumer protection rule
Editorial Board, The New York Daily News

Consumers are this close to getting back the power to take financial firms to court for unjust credit card fees, bait-and-switch loan terms and other shenanigans. And Congress, doing Wall Street’s dastardly bidding, is gearing up to stand in the way.

Janet Yellen has no idea what she’s talking about
Jonathon Trugman, New York Post

If you have ever wondered just how detached Washington is, all you had to do was tune into Fed chief’s Janet Yellen’s semiannual trip to the Capitol Hill. There they were — Yellen and members of Congress yucking it up, utterly blind to the real financial pressures ordinary regular Americans feel each and every day.

Research Reports

Executive Compensation: A Survey of Theory and Evidence
Alex Edmans et al., The National Bureau of Economic Research

This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives.