Morning Consult Finance: Citigroup CEO Said to Step Down Early As Bank Regulators Prepare Reprimand Over Risk Management Systems



Top Stories

  • The Office of the Comptroller of the Currency and the Federal Reserve are expected to reprimand Citigroup Inc. over its failure to improve its risk management systems, a move that pushed Chief Executive Michael Corbat to step down from his position early, people familiar with the matter said. While regulators didn’t ask for Corbat’s resignation, he believed that the multiyear overhaul on the bank’s risk management systems would be better handled by Jane Fraser, who will succeed him, the people said. (The Wall Street Journal)
  • Wells Fargo & Co. cut its guidance for net interest income this year to $40.5 billion as the bank expects loan growth to flag. Wells Fargo Chief Financial Officer John Shrewsberry said during a presentation that large and midsized firms are using the bond market for their financing, adding that the demand for new credit “is not particularly robust.” (Bloomberg)
  • Treasury Secretary Steven Mnuchin said that “now is not the time” to worry about the deficit or the Fed’s balance sheet, urging lawmakers to not let concerns over the two to delay further coronavirus aid. Mnuchin criticized Republicans who have argued that improving job and housing figures mean that Congress should reduce spending, saying he thinks that “both the monetary policy working with fiscal policy and what we were able to get done in an unprecedented way with Congress is the reason the economy is doing better.” (CNBC)

Chart Review

Events Calendar (All Times Local)

09/15/2020
NAFCU Virtual Congressional Caucus
Women in Housing & Finance event: “Access to Credit: How Inclusive Is the U.S. Financial System” 12:00 pm
CFPB Listening Session with Members of the Bureau’s Taskforce on Federal Consumer Financial Law 2:30 pm
09/16/2020
House Financial Services Committee hearing: “Prioritizing Fannie’s and Freddie’s Capital over America’s Homeowners and Renters? A Review of the Federal Housing Finance Agency’s Response to the COVID-19 Pandemic” 12:00 pm
Women in Housing & Finance event: “FRB Control Framework” 12:00 pm
SIFMA webinar: LIBOR – Preparing for Alternative Reference Rates 1:00 pm
09/17/2020
SIFMA Equity Market Structure Conference
House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets hearing: “Insider Trading and Stock Option Grants: An Examination of Corporate Integrity in the Covid-19 Pandemic” 12:00 pm
View full calendar


Watch the Webinar On Demand – The Gen Z Threat

Recently, Morning Consult hosted a webinar breaking down our latest report, Gen Z’s Most Loved Brands of 2020.

You can access a recording of the webinar here for insight into how the pandemic is transforming Gen Z’s relationship with brands, and how brands should adapt to meet the changing expectations of this generation of the future.

General

‘They made a really big mistake’: Biden confronts a regret of the Obama years
Ben White, Politico 

President Barack Obama entered the White House in 2009 during a brutal recession, quickly pushed through a sizable stimulus package and then spent the next several years realizing it wasn’t nearly big enough. Joe Biden is determined not to have the same regrets if he wins.

Fed Names Trevor Reeve as New Monetary Affairs Chief
Nick Timiraos, The Wall Street Journal

The Federal Reserve named Trevor Reeve, a senior adviser to Chairman Jerome Powell, to the powerful role of director of its monetary affairs division on Monday. Mr. Reeve has served as the division’s deputy director since 2017. Thomas Laubach, who served as the division’s director since 2015, died on Sept. 2 after being treated for cancer.

Economists warn of US ‘wasteland’ without stimulus deal
James Politi, Financial Times

Hopes fade for $1tn or more in government aid for workers, businesses and local governments.

Frustrated lawmakers draft their own pandemic aid package
Sarah Ferris, Politico 

A bipartisan group of House lawmakers on Tuesday will put forward their own plan to deliver badly needed coronavirus relief amid a bitter stalemate between their party leaders. The House Problem Solvers Caucus has assembled a roughly $2 trillion plan that includes a second round of stimulus checks, unemployment aid and small business loans that they say would last through at least next spring.

Kodak Deal Draws Review From Watchdog at Agency Involved in Planned Loan
Rachel Levy, The Wall Street Journal

A planned $765 million U.S. loan for Eastman Kodak Co. to produce drug ingredients is under review by the inspector general of the agency that helped put together the deal. The newly named inspector general of the U.S. International Development Finance Corp., a federal agency charged with making loans to businesses in connection with the coronavirus pandemic, told Sen. Elizabeth Warren (D., Mass.) last Thursday that his office was opening a review of the loan, according to a spokeswoman for Ms. Warren, who had called for further investigation.

The recession is testing the limits and shortfalls of the Federal Reserve’s toolkit
Rachel Siegel, The Washington Post

In the six months since the coronavirus pandemic gripped the U.S. economy, the Federal Reserve has reached far beyond its playbook from the Great Recession, growing its balance sheet by roughly $3 trillion through emergency lending programs and moves to bolster the markets. The vast emergency response helped stabilize a stock market jolted by the rapidly-spreading virus and is keeping credit flowing in ways that, Fed leaders say, has prevented an even deeper financial crisis.

Fed Forecasts to Leave Public Guessing on New Rate-Setting Plan
Matthew Boesler, Bloomberg

The Federal Reserve’s new approach to setting interest rates will probably be hard to divine from the economic projections it’s set to publish on Wednesday. That’s because those forecasts, released alongside its policy decision, only encapsulate Fed officials’ views about the next few years. 

European Stocks, U.S. Futures Gain on China Data: Markets Wrap
Olivia Konotey-Ahulu and Andreea Papuc, Bloomberg

European stocks climbed for a third day, supported by improving Chinese economic data and positive results coming from retailers. U.S. equity futures advanced and the euro strengthened. Ocado Group Plc rallied after the U.K. grocery delivery company reported a strong surge in sales. 

Banking

Banks Balk at Fed’s $600 Billion Lifeline for Main Street Firms
Lisa Lee et al., Bloomberg

It was billed as a lifeline for America’s middle-market companies seeking cash to get through the pandemic. Yet more than two months since its launch, the Federal Reserve’s Main Street Lending Program isn’t living up to expectations as few banks are willing to provide the loans.

Citigroup to Resume Job Cuts After Pausing for Pandemic
Jennifer Surane, Bloomberg

Citigroup Inc. will resume job cuts starting this week, joining rivals such as Wells Fargo & Co. in ending an earlier pledge to pause staff reductions during the coronavirus pandemic. The cuts will affect less than 1% of the global workforce, the bank said Monday in a statement.

$10 billion in Wells Fargo cost cuts will mostly be layoffs, take several years
Austin Weinstein, The Charlotte Observer

Wells Fargo’s plan to cut billions of dollars in expenses will mostly consist of layoffs and potentially take as long as four years, Chief Financial Officer John Shrewsberry said in a Monday presentation to investors. In July, the bank said it intended to cut roughly $10 billion in annual expenses, about a fifth of its yearly $54 billion in spending.

At JPMorgan, Productivity Falls for Staff Working at Home
Michelle F. Davis, Bloomberg

A troubling pattern emerged as most of JPMorgan Chase & Co.’s employees worked from home to stem the spread of Covid-19: productivity slipped. Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts. 

Financial Products and Investments

Calpers Board Weighs Curbs on Investment Chief’s Personal Holdings
Heather Gillers, The Wall Street Journal

Directors of the nation’s largest pension fund this week will discuss limiting personal investments by the fund’s investment chief and potentially other officials following revelations that the fund’s former investment chief held shares in one of its private-equity managers. California Public Employees’ Retirement System Chief Executive Marcie Frost is already planning to ask the next investment chief to sell or place in a blind trust any holdings that could prompt a conflict of interest.

Housing and GSEs

If Biden wins, what happens to Fannie and Freddie?
Kathleen Howley, HousingWire

If former Vice President Joe Biden wins the White House, it will derail the Trump Administration’s plans to release Fannie Mae and Freddie Mac from conservatorship. What, then, would happen to the world’s two largest mortgage financiers? Most likely, it means more time in conservatorship as the Biden administration grapples with the COVID-19 crisis, said Jaret Seiberg, managing director of Cowen Washington Research Group in a note to clients on Friday

Taxes

Businesses reject Trump payroll tax plan while postponing their own tax bills
Brian Faler, Politico 

Most American workers won’t be getting the payroll tax break pushed by President Donald Trump, thanks to widespread opposition from employers. But many businesses are using a similar break to punt their own payroll tax bills. Tens of thousands of companies are taking advantage of little-noticed provisions approved by Congress allowing them to postpone paying their payroll taxes until next year and beyond.

Millionaires Would Pay Up Under Biden Tax Plans, Study Shows
Laura Davison, Bloomberg

Millionaires could see much bigger tax bills if Democrat Joe Biden is elected president in November, but levies on most households below the top income brackets would stay about the same as under President Donald Trump, an outside analysis shows. Biden’s tax proposals would have the top 0.1% of earners — those currently making about $3.3 million or more annually — paying a 43% rate on their income, according to the Penn Wharton Budget Model. 

Financial Technology

Goldman Sachs is taking what it learned from a $100 million acquisition to upgrade the Marcus app
Hugh Son, CNBC

Goldman Sachs is one step closer to creating what it calls the digital bank of the future. The bank has just released the first version of a personal finance management tool that gives customers of its Marcus retail brand a top-down view of all their financial accounts, as well as insights into spending and a monthly snapshot of their budget, according to Adam Dell, a Goldman partner and head of product at Marcus.

Payments provider Klarna raises $650 million from Silver Lake-led investor group
Supantha Mukherjee, Reuters

Swedish payments provider Klarna Bank AB said on Tuesday it has raised $650 million from investors led by Silver Lake, lifting its valuation to $10.65 billion, as it seeks to take on rivals such as PayPal PYPL.O and Australia’s AfterPay APT.AX in the fiercely competitive U.S. market. The spread of the coronavirus has led more people to shop online and use options like “buy-now-pay-later” in several interest-free installments offered by the alternative credit firms.

Opinions, Editorials and Perspectives

Will Congress Ever Break the Covid Relief Standoff?
Alan S. Blinder, The Wall Street Journal

It is distressing that good economic policies often make bad politics and therefore aren’t adopted. Examples abound, including carbon taxes to combat climate change and broadening the tax base by closing loopholes. This is sad but familiar turf.

The G.O.P. Plot to Sabotage 2021
Paul Krugman, The New York Times

Nobody knows for sure who will win in November. Joe Biden holds the advantage right now, but between the vagaries of the Electoral College and whatever October surprises the Trumpists cook up — you know they’re coming — who knows? One thing that’s clear, however, is that Republicans — not just Donald Trump, but his whole party — are acting as if there’s no tomorrow. 

Research Reports

Artificial Intelligence: Recommendations for Principled Modernization of the Regulatory Framework
Bank Policy Institute 

Artificial intelligence (“AI”) offers a leap forward for the accuracy and fairness of decisions on consumer credit.  AI can integrate and analyze richer data sets than conventional credit underwriting, and can more accurately assess a consumer’s creditworthiness using factors (and combinations of factors) not considered by conventional underwriting systems. 

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