Finance Brief: Wells Fargo Sued by Philadelphia Over Alleged Predatory Lending

Washington Brief

  • Retail chief executives will be renewing their efforts to block the House GOP’s border adjustment tax proposal in a planned meeting today with Treasury Secretary Steven Mnuchin. An outline of the Trump administration’s tax agenda released last month did not include the border adjustment provision. (Bloomberg News)
  • House Ways and Means Committee Chairman Kevin Brady (R-Texas) stood firm in his position that tax cuts should be offset by revenue-raising provisions, a notable difference from the White House’s openness to increasing the federal deficit in the short-term as a result of tax cuts. (Bloomberg News)
  • Transportation Secretary Elaine Chao indicated that the administration’s $1 trillion infrastructure plan is moving forward, saying President Donald Trump will provide details in a few weeks. She said the proposal will call for $200 billion in taxpayer input. (Fox Business News)

Business Brief

  • The City of Philadelphia sued Wells Fargo & Co., alleging that the country’s largest mortgage lender engaged in predatory lending. The lawsuit, which comes after a recent Supreme Court decision allowing cities to sue banks for alleged discrimination that leads to widespread defaults and lower property tax revenue, compounds Wells Fargo’s legal woes in the wake of its consumer fraud scandal. (Reuters)
  • The board of American International Group Inc. selected Brian Duperreault, who served as a deputy to former Chief Executive Hank Greenberg, as its new president and CEO. Duperreault said he wouldn’t break up the insurance giant, a systemically important financial institution. (The New York Times)
  • The Securities and Exchange Commission charged two former Nomura traders with misrepresenting price information on mortgage-backed securities. Kee Chan agreed to settle the charges without admitting or denying wrongdoing, while James Im is the subject of a pending case. (MarketWatch)

Chart Review

Money Market Fund Monitor, May 2017 Update
Office of Financial Research

Events Calendar (All Times Local)

Tuesday
Senate Banking Committee hearing for Treasury and Commerce nominees 10 a.m.
Peterson Institute event on exchange rates and trade 5:30 p.m.
Wednesday
CFPB academic research council meeting 9 a.m.
FDIC ‘Money Smart’ webinar 1 p.m.
Heritage Foundation event on Volcker rule 2 p.m.
Politico discussion on tax reform 5:30 p.m.
Atlantic Council event on infrastructure with Rep. Delaney 6 p.m.
Thursday
American Council for Capital Formation conference with Rep. Roskam 8 a.m.
Senate Banking Committee hearing with Treasury’s Mnuchin 10 a.m.
House Ways and Means Committee hearing on tax reform 10 a.m.
House Financial Services subcommittee hearing on Greek bailout 10 a.m.
Friday
U.S. Chamber of Commerce investment summit 8:30 a.m.
House Judiciary Committee hearing on antitrust enforcement 9 a.m.

 

General

Trump Administration Fast Tracks Infrastructure as Taxes, Health Care Stall
Brittany De Lea, Fox Business News

The Trump administration appeared to be fast-tracking its $1 trillion infrastructure plan Monday, as Transportation Secretary Elaine Chao said Americans can expect President Donald Trump to release details in just a few weeks. While Chao previously said the plan would be publicly fleshed out by the end of the year, that timetable has been shifted forward amid an ongoing battle in Congress over the GOP’s plan to repeal and replace ObamaCare and implement Trump’s tax plan, which is likely to cause just as much, if not more, controversy.

Euro Soars Amid Trump Concerns; Oil Extends Gain: Markets Wrap
Samuel Potter et al., Bloomberg News

Futures on the S&P 500 Index were little changed after the benchmark gauge advanced 0.5 percent Monday.

Banking

Philadelphia sues Wells Fargo, alleges predatory lending
Jonathan Stempel, Reuters 

The City of Philadelphia sued Wells Fargo & Co on Monday, accusing the largest U.S. mortgage lender of predatory lending, which violates the federal Fair Housing Act. The lawsuit came two weeks after the U.S. Supreme Court, in a case also involving Wells Fargo, said cities can sue lenders for alleged discrimination that causes many defaults by minority borrowers, and harms cities through lower property tax revenue and increased costs to combat crime and blight.

California lawmakers want to rein in Wells Fargo’s arbitration clause. But can they?
James Rufus Koren, The Los Angeles Times 

Long before Wells Fargo & Co. admitted to opening potentially millions of unauthorized accounts, customers had noticed the bank’s practices and sued. Well, they tried, but were turned away by judges citing unfavorable contractual language customers must agree to when doing business with the San Francisco bank.

Wall Street Thinks Trump’s All Talk When It Comes to Breaking Up Banks
Max Abelson, Bloomberg News

On the first day of May, Donald Trump sat in the Oval Office and declared that his administration was taking a look at breaking up Wall Street’s biggest banks. If they ever took him seriously, it didn’t last.

New front in credit union-bank wars: alternative capital
John Reosti, American Banker 

Are bankers and credit unions about to open up yet another front in their long-running conflict? Signs appear to be pointing in that direction as the National Credit Union Administration mulls whether to formally propose a rule that would open the door to broader and more frequent use of alternative capital.

Financial Products and Investments

‘I Am Here to Grow A.I.G.,’ Its New C.E.O., Brian Duperreault, Pledges
Chad Bray, The New York Times 

American International Group said on Monday that it had tapped a former executive to lead the insurance giant, two months after its chief executive said he would resign as shareholders had lost faith in a two-and-a-half-year turnaround effort.

Puerto Rico Strikes Deal With Development Bank’s Bondholders
William Selway and Alexander Lopez, Bloomberg News

Puerto Rico said creditors of the insolvent government development bank agreed to accept losses by exchanging their bonds for new securities, moving the island another step toward escaping from some of its crushing debts. Governor Ricardo Rossello said Monday that his administration struck a deal with major bondholders of the bank, which borrowed for the U.S. territory until the island’s fiscal crisis pushed it to default.

Large hedge funds moved out of financial stocks in first quarter
David Randall and Svea Herbst-Bayliss, Reuters 

Several big-name hedge fund investors trimmed their stakes in financial companies in the first quarter as hopes for immediate tax cuts and loosening of regulations after President Donald Trump’s victory in November began to fade. Boston-based Adage Capital Management cut its position in Wells Fargo & Co, which has come under fire for its sales practices, by 3.9 million shares, according to regulatory filings, while John Burbank’s Passport Capital cut its stake in the company by 947,000 shares.

Housing and GSEs

Former Nomura traders charged with fraud over mortgage securities
Steve Goldstein, MarketWatch 

Two former traders at Nomura who ran the commercial mortgage-backed securities desk were charged by the Securities and Exchange Commission with deliberating lying to customers to inflate the profits of the desk and themselves. The SEC alleges that James Im and Kee Chan each misrepresented price information while acting as intermediaries on trades with Nomura’s customers who sought to buy and sell CMBS on the secondary market.

Trump Official Says Fannie, Freddie Should Let In Private Market
Joe Light, Bloomberg News

A top Treasury Department official said the Trump administration wants to boost the role of private capital in the mortgage market, a longstanding Washington goal that has largely befuddled policy makers since the 2008 financial crisis. Transferring risk away from Fannie Mae and Freddie Mac is “core” to U.S. housing policy, Craig Phillips, a counselor to Treasury Secretary Steven Mnuchin, said Monday at a conference in New York.

25 Million Americans Could Find Mortgage Tax Break Useless Under Trump’s Plan
Prashant Gopal and Joe Light, Bloomberg News

U.S. Treasury Secretary Steven Mnuchin has taken pains to stress that the Trump administration isn’t out to kill Americans’ beloved mortgage-interest tax deduction — but a side effect of the plan could turn it into a perk for only the wealthy. President Donald Trump has proposed rewriting the tax code to raise the standard federal deduction to a level where about 25 million homeowners would no longer take advantage of the century-old break.

Taxes

Retail CEOs Renew Border-Tax Fight at Meeting With Mnuchin
Matthew Townsend, Bloomberg News

After months of uncertainty about a border-adjusted tax, retail CEOs are renewing efforts to quash the idea. Executives are planning to host a meeting with Treasury Secretary Steven Mnuchin on Tuesday to reinforce their opposition to the tax policy, which is a centerpiece of House Speaker Paul Ryan’s agenda.

Top Tax Writer in House Won’t Back Down on Offsetting Cuts
Alexis Leondis and David Westin, Bloomberg News

House Ways and Means Chairman Kevin Brady isn’t giving up on a tax package that pays for itself, even though President Donald Trump has said he’s willing to accept a bill that adds to the deficit in the short term. During an interview on Bloomberg Television Monday, Brady said it’s essential to offset tax cuts with revenue raisers so they don’t add to the deficit and can generate the maximum amount of growth over the longest period of time.

House GOP not sold on Ryan’s tax reform plan
Naomi Jagoda, The Hill 

Dozens of Republican lawmakers are raising concerns or say they are undecided on Paul Ryan’s (R-Wis.) proposed tax on imports, suggesting the Speaker’s broader tax reform plan may not have the votes to pass the House. The Hill has been tracking House Republicans’ positions on the border-adjustment tax for the last several months based on interviews with lawmakers and their aides, as well as comments made to other media outlets.

Trump Plan to Slash LLC Rate Is Boon for Top Earners, Study Says
Lynnley Browning, Bloomberg News

President Donald Trump’s proposal to slash the tax rate for partnerships and limited liability companies would mostly benefit the top 1 percent of Americans in terms of income, according to a study released Monday. Pass-through businesses — which include small operations like corner stores and free-lancers but also doctors, lawyers, consultants and vastly profitable hedge funds — get their name from the way they file taxes: They pass their income through to their owners, who then pay tax based on their individual income-tax rates.

Trump’s tax plan was aimed at creating a simpler system. So far, it has triggered a lobbying bonanza
Damian Paletta and Max Ehrenfreund, The Washington Post 

When President Trump issued a one-page blueprint for overhauling the tax code last month, top administration officials promised it would be the start of a simpler tax system, one with lower rates for everyone but also with far fewer of the deductions, loopholes and carve-outs that make the current code so complicated. What he has gotten so far, however, is a lobbying dogpile, with industry groups rushing to Congress in search of help defending the tax breaks their member companies have profited from for decades.

Chamber urges Treasury to withdraw rules on inversions, estate tax
Naomi Jagoda, The Hill 

The U.S. Chamber of Commerce recommended Monday that the Treasury Department withdraw several Obama administration-era tax rules, including controversial guidance issued last year concerning offshore tax deals and the estate tax. The Chamber’s comments come after President Trump signed an executive order in April that directs Treasury to review all significant tax regulations issued in 2016.

Financial Technology

States gang up to kill US fintech charter and offer alternative ‘Vision 2020’
Neil Ainger, CNBC 

John Ryan, president of the Conference of State Bank Supervisors (CSBS), has come out in support of the New York banking regulator’s lawsuit filed on Friday against the federal OCC. He called its plans to offer special purpose charters to financial technology (fintech) firms, allowing them to compete with banks nationwide, “unlawful” and “harmful”.

BNY Mellon advances artificial intelligence tech across operations
Anna Irrera, Reuters 

The Bank of New York Mellon Corp has developed and deployed automated computer programs, or more than 220 “bots”, across its businesses over the past 15 months seeking more efficiency and lower costs, as the adoption of artificial intelligence technology in banking increases. The 233-year-old custodian bank says its new army of robotics, or software created to carry out an often repetitive task that would normally be performed by humans, range from automated programs that respond to data requests from external auditors, to systems that correct formatting and data mistakes in requests for dollar funds transfers.

Capital One forays into digital ID, aiming to leverage KYC know-how
Marc Hochstein et al., American Banker 

Capital One Financial is trying to turn the expense of thoroughly vetting bank customers into a moneymaker with new digital identity products. It is pitching these verification, enrollment and authentication tools to businesses as a way to improve user experience, reduce online abandonment rates and not least of all guard against fraud.

A Message from SIFMA:

The Department of Labor must delay its harmful fiduciary rule until the review directed by President Trump is completed. Up to 14.7 million consumers could face significant changes to their retirement and financial advice, and lose up to $109 billion over 10 years. American investors deserve better. DOL needs to take the time to get this right and review the entire rule. Protect the retirement savers. Delay the DOL rule.

Opinions, Editorials and Perspectives

Getting Up to Speed in the On-Demand Economy
Jan Estep, Morning Consult 

It wasn’t long ago that you had to arrange in advance for a taxi to pick you up for that early morning flight, or that you had to order gifts and office supplies well in advance since shipping could take more than a week. Times have changed, and the on-demand economy is all around us.

Puerto Rico’s Debt Lessons
Editorial Board, The Wall Street Journal 

The legal brawl over Puerto Rico’s bankruptcy begins this week, and it will be long and ugly. The pain might be worth something if the island can use this rare chance to reform its government, and creditors learn a hard lesson about lending to spendthrift politicians.

Trump’s China trade deal is underwhelming
Editorial Board, The Washington Post 

PRESIDENT TRUMP wrote in his 1987 bestseller, “The Art of the Deal” : “People want to believe that something is the biggest and the greatest and the most spectacular. I call it truthful hyperbole. It’s an innocent form of exaggeration — and a very effective form of promotion.” That approach seems to have guided administration pronouncements about the new “100-day action plan” on trade with China, agreed on between the Trump administration and President Xi Jinping’s representatives May 11 — which Commerce Secretary Wilbur Ross billed as “the first real breakthrough that we’ve had with China in decades.”

Reining in a runaway federal agency
Barry Loudermilk, The Atlanta Journal-Constitution 

From small mom-and-pop shops to larger corporations, there is a consistent concern about the growth of government and the impact federal regulation has on their ability to successfully operate their businesses. However, when I meet with someone in the financial services sector, whether a community banker, small financial advisor, or an executive of a larger financial institution, they all express a genuine fear over the unconstrained power of one government entity, the Consumer Financial Protection Bureau (CFPB).

CHOICE Act takes consumer cops off the Wall Street beat
Dennis Kelleher, The Hill 

At a time when too many hard-working American families are still recovering from the devastating impact of the 2008 financial crash, deregulating Wall Street’s biggest firms again makes no sense. Yet the Financial CHOICE Act threatens to do exactly that.

Talk of Glass-Steagall reboot ignores this reality about C&I lending 
Peter J. Wallison, American Banker 

The contours of the 21st-century Glass-Steagall Act that both the Trump administration and many in Congress are talking about are not at all clear, but it is important for everyone to understand what dangers lurk in reducing the ability of banking organizations to compete in a constantly evolving financial system. The Gramm-Leach-Bliley Act of 1999 formally overturned the Glass-Stegall provisions that prohibited affiliations between banks and firms that underwrite or deal in securities.

A Message from SIFMA:

The Department of Labor’s fiduciary rule is harming retirement savers and it must be delayed for a minimum of 180-days. Recently, the DOL provided a 60-day delay of the rule, which temporarily helped prevent further service changes, customer confusion and market disruptions. However, this is not enough time to fully review the consequential impact of the entire rule, as requested by the president. Further delay is needed to conduct the review and protect retirement savers from additional harm and turmoil.

Research Reports

Options to Reduce the Taxation of Pass-Through Income
Jeffrey Rohaly et al., Tax Policy Center 

The Trump administration and House Republicans are developing proposals that would reduce the individual income tax rate on income earned through pass-through entities such as sole proprietorships, partnerships, and S-corporations.

Briefings

Finance Brief: Week in Review & What’s Ahead

Treasury Secretary Steven Mnuchin told lawmakers that the Trump administration does not support reinstating the firewall between investment and commercial banking required under the Depression-era Glass-Steagall Act, clarifying previous remarks from White House officials that indicated a preference for reinstating the law that was repealed in 1999.

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