WEDNESDAY JANUARY 20, 2021 VOL. 186 No. 12 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Morgan Stanley’s 5 transformation chief pushes pushes cloud tech, diversity Sigal Zarmi, who took on broader duties this fall, is modernizing the company’s technological infrastructure and using reverse mentoring to combat bias in the workplace. Page 5

JPMorgan Chase: More 6 stimulus needed to prevent loan defaults Federal relief efforts have minimized loan losses so far, but risks remain in credit card, auto and business lending. Many borrowers will need another lifeline to stay afloat until the economy rebounds, CEO says. Page 6

Fintechs competing unfairly 7 with banks, Dimon says JPMorgan Chase CEO Jamie Dimon fired a warning shot Friday at financial technology upstarts such as Chime and Plaid. Page 7

BofA’s unit 8 falls short of rivals during bumper year Revenue from sales and trading rose dailybriefing Wells Fargo pledges 7% to $3.06 billion in the fourth quarter, 3 to cut $8 billion in missing analysts’ $3.15 billion forecast. The overhead. Is it enough? division, helmed by Jim DeMare, was hurt Incoming Citi CEO Fraser CEO Charlie Scharf’s long-awaited expense- by unexpected weakness in fixed-income 1 signals major changes ahead reduction plan got a chilly reception from trading. Page 7 Weeks away from succeeding Michael investors. Page 3 Corbat, Jane Fraser said she’d consider Capital One fined $290M streamlining some units or divesting others Democrats’ sweep helps 9 for ‘willful’ anti-money- as part of her effort to boost return on equity. 4 pot banking’s cause, laundering failures (See chart above.) Page 2 but battle is far from over The McLean, Va.-based company admitted The odds are better now that Congress will that it failed to file suspicious activity reports PNC says BBVA deal won’t pass a bill to help financial institutions even in cases when it knew about criminal 2 derail organic growth plans serve cannabis businesses, but the question charges against specific customers. The The Pittsburgh company intends to continue of the legislative path forward has grown misconduct took place in a unit that served adding commercial offices and retail murkier. Page 4 check-cashing businesses and was later shut branches in markets it had been eyeing down. Page 8 before agreeing to buy BBVA USA for $11.6 billion. Page 3 Don’t lose sight of what 10 matters most: The customer In these uncertain times, strengthening relationships with clients is the one thing front-line bankers can control, Dave Martin writes in BankThink.Page 9 WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 2

and Wells Fargo’s 6.4%. The other megabank, between 2% and 3%, mostly as a result of GROWTH STRATEGIES Bank of America, will report quarterly continued investments in that area. earnings next week, but its third-quarter ROE Meanwhile, Fraser will have to tackle the was 7.2%. decline in revenue in Citi’s global consumer Incoming Citi Some of Fraser’s efforts are underway. This banking unit since the pandemic hit. Though week, Citi announced the consolidation of it picked up slightly in the fourth quarter, CEO Fraser two wealth management units into a single consumer banking revenue is far off pre- global division, bringing wealth management pandemic levels because of reduced card services for the ultrawealthy under the same activity and low interest rates. signals major umbrella as services for substantially less One analyst, Glenn Schorr of Evercore, affluent consumers. asked if global consumer banking “fits well changes In a separate move this week, the company together” and wondered if it could become also announced a leadership reorganization two separate businesses. of its U.S. consumer banking business. Fraser reiterated that the work in figuring ahead Details of Fraser’s vision for Citi, a New out what fits and what doesn’t is just York-based megabank that operates in 95 beginning. By Allissa Kline countries, have been highly anticipated since “As I say, we’re taking it a step back and January 15, 2021 the announcement that current CEO Michael [Chief Financial Officer] Mark [Mason] and I Incoming CEO Jane Fraser Corbat would retire and Fraser, a 16-year are working on a dispassionate view of all of dropped hints Friday about how she’ll rework veteran of Citi who had been leading the the businesses and looking at what are the the company and vowed that its longtime, bank’s global consumer division, would take leading franchises we want to invest behind, peer-lagging returns would improve on her his place. She will become the first woman to what are the others that we want to grow to watch. lead a Wall Street bank. win,” Fraser said. “And as we do that work, we In her first quarterly earnings call since She’s rising to the top at a challenging will let you know what’s the direction we’re being named CEO-to-be in September, Fraser time. In addition to operating in a pandemic going to be taking.” — who is slated to take over next month — economy, the company’s risk management Citi reported net income of $4.6 billion for played the details of her strategy close to and internal-controls systems are under the fourth quarter, down 7% from the fourth the vest. But she did signal the possibility of scrutiny by federal regulators, who issued two quarter of 2019. Revenues fell 10% during realigning certain business lines, selling off consent orders and imposed a $400 million the same time period, reflecting a decline others and simplifying a $2.3 trillion-asset civil money penalty after finding deficiencies of revenue in global consumer banking, company that has been criticized over the in the company’s current systems. Citi must the institutional clients group and other years for being skin deep in too many markets submit an analysis of its shortcomings to corporate lines. and business lines. regulators next month. Earnings per share of $2.08 fell 3% from the “What we’re looking at, at the moment, Fraser said the company’s detailed same period in 2019, but beat the consensus is much more around what we want to be remediation plan will be submitted in May. estimate of $1.34. going forward and where we are in the work Last year Citi spent about $1 billion to enhance Citi shares were down nearly 7% Friday on is looking at … the different businesses [and] infrastructure, risk aversion and controls. The a day the Dow Jones Industrial Average fell how do they best fit together,” Fraser said on 2021 outlook projects that expenses will rise about half a percent. the call Friday. “If it ends up that there are businesses we look at that we don’t think fit well into the mix, then I think we’ve got good Established 1836 One State Street Plaza, 27th floor, , NY 10004 skills in terms of thinking about how we divest Phone 212-803-8200 AmericanBanker.com of those in a way that makes sense.” When questioned by Wells Fargo analyst Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 Mike Mayo about Citi’s stock — which Managing Editor Dean Anason 770.621.9935 regularly underperforms that of other large Reporters/Producers banks — Fraser was straightforward. Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 “To be fair, while we have made Washington Bureau Chief Joe Adler 571.403.3832 demonstrable progress [in increasing share Executive Editor, Technology Miriam Cross 571.403.3834 valuation] over the last 10 years since the Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 crisis, [we] equally know there is a gap to BankThink Editor Rachel Witkowski 571.403.3857 close with our peers,” she said. “You can hold John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 me accountable for doing so along with the Hannah Lang 571.403.3855 management team. We’re a team on a mission Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 to get this done, and we will get this done.” Digital Managing Editor Citi reported a return on equity of 5.9% for Christopher Wood 212.803.8437 Jackie Stewart 571.403.3852, Kevin Wack 626.486.2341 the quarter, trailing JPMorgan Chase’s 12%

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 3

analysts surveyed by FactSet Research GROWTH STRATEGIES Systems. Total revenue declined 3% to $4.2 EARNINGS billion. PNC recorded a negative provision for PNC says credit losses of $254 million, compared with Wells Fargo provisions of $52 million and $2.5 billion in BBVA deal the third and second quarters, as economic pledges to cut conditions have improved since the start of the coronavirus pandemic. won’t derail Noninterest income totaled $1.8 billion, $8 billion in a 3% decrease from the year-ago quarter. organic Higher asset management, corporate overhead. Is it services and residential mortgage fee income helped to offset declining deposit growth plans service charges and other noninterest enough? income. By Laura Alix Net interest income fell 3% to $2.4 billion By Kevin Wack January 15, 2021 due to lower yields on earning assets. PNC’s January 15, 2021 PNC Financial Services Group in net interest margin stood at 2.32% compared The cost-cutting plan that Wells Fargo Pittsburgh will not pause its organic growth with 2.78% a year ago. outlined Friday is both massive and not big strategy while it ties up its deal to buy BBVA Total loans at Dec. 31 were $241.9 billion, enough for many on Wall Street. USA. up 1% on a yearly basis. While consumer Under the long-anticipated proposal, In recent years, the $466.7 billion-asset loans fell 6% to $74.7 billion, commercial Wells pledged to chop its gross expenses by PNC has added commercial offices in new loans rose 4% to $167.2 billion, thanks largely more than $8 billion in the coming years, markets such as Boston and Phoenix while to PNC’s participation in the Paycheck equal to about 14% of its total noninterest also opening retail branches in markets Protection Program. expenses in 2020. such as Dallas and Kansas City, Mo. While Net loan charge-offs totaled $229 Still, the plan disappointed some investors; discussing the company’s fourth-quarter million in the fourth quarter, up 10% from the company’s shares fell nearly 8% Friday, earnings on Friday, executives said PNC a year ago and 48% from the prior quarter. to close at $32.04. CEO Charlie Scharf said would continue opening offices, except in Nonperforming loans totaled $2.3 billion, in July that the firm would need to cut its markets where BBVA already has a presence. up 40% from a year ago and 10% from the expenses by $10 billion to approach the level “We’re not going to wait to close [the third quarter. of efficiency of other large banks. acquisition] before we think about the Chief Financial Officer Robert Reilly “I think that the market, rightly or wrongly, totality of the products and services we want described charge-offs as not material, but had positioned itself for a bigger number,” in a particular market,” Chairman and CEO said he expects to see further stress in certain Scott Siefers, an analyst at Piper Sandler, said William Demchak said in response to an industries hit hard by social distancing in an interview after the plan was released. analyst’s question. measures, particularly recreation and travel. Aggressive cost-cutting is needed to PNC announced in November that However, PNC also said that about $105 boost the competitive position of Wells, it would pay $11.6 billion for the U.S. million worth of nonaccrual loans had which has been forced to spend heavily to operations of Banco Bilbao Vizcaya returned to performing status during the clean up a series of scandals. The company Argentaria. The $104 billion-asset BBVA is fourth quarter. has a substantially larger expense base as a based in Houston and was formerly known “Some of these companies have adapted percentage of its revenue than other large U.S. as Compass Bancshares, until its Spanish … to the new economy and are actually banks. The low interest rate environment and parent company bought and rebranded it. performing well,” Reilly said. “It’s as simple an asset cap imposed by the Federal Reserve Executives provided few other updates as that.” Board in 2018 are both limiting its ability to on the pending deal, which would be PNC’s generate more income. first bank acquisition since it bought Royal Under the plan unveiled Friday alongside Bank of Canada’s U.S. operations in March Wells Fargo’s fourth-quarter earnings 2012. results, future expense cuts are broad-based. PNC reported net income of $1.5 billion Nearly $3 billion in savings would come in the fourth quarter, up 5.4% from the from what the bank calls optimization of its same period in 2019, as improved credit organizational structure, which includes quality and strong fee income helped to eliminating layers of management. offset weaker net interest income and total Another $1.6 billion would be saved by revenue. closing more branches and reducing staffing Earnings per share totaled $3.26, beating at locations that remain open. After closing the mean estimate of $2.61 according to 329 branches last year, Wells Fargo plans to

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 4 shutter 250 more in 2021. was up 4% from the same period a year opportunity to go further and decriminalize Increased automation in the company’s earlier. Net interest income decreased by 17% marijuana altogether, which would give consumer lending businesses, particularly to $9.28 billion amid low interest rates and depository institutions more cover to cater to mortgages and auto loans, would yield sagging loan demand. an industry under a legal cloud. another $1.1 billion in savings, with a similar The company’s fourth-quarter“By de-scheduling cannabis, it would amount of money expected to be squeezed performance was also affected byremove the conflict immediately and banks out of the firm’s commercial banking unit. restructuring charges and accruals for would have no legal issues with working Wells Fargo also said that it will lower its customer remediation that totaled $1.1 with cannabis businesses because they real-estate expenses substantially, with total billion, partially offset by a $757 reserve would be in no violation of federal law,” said office space to be reduced by 15% to 20% by release in connection with the planned sale Morgan Fox, a spokesperson for the National the end of 2024. of the firm’s private student loan portfolio. Cannabis Industry Association. Overall, the $1.9 trillion-asset company The student loan portfolio sale is part of Democrats controlling the Senate said that it has identified roughly 250 Scharf’s plan to divest business lines that could position Congress to pass the efficiency initiatives it expects to execute are not considered core to the franchise. Marijuana Opportunity Reinvestment and over three to four years. But the firm pointed Bloomberg reported Thursday that Wells is in Expungement Act, or MORE Act, which to the three-year-old asset cap, which seems talks to sell its asset-management business to would remove marijuana from the list of unlikely to be lifted in 2021, as a key source of a private-equity consortium. scheduled substances under the Controlled uncertainty about when cost savings can be Substances Act. achieved. Sen. Elizabeth Warren, D-Mass., has also “Though we believe we’re making MARIJUANA BANKING championed the Strengthening the Tenth meaningful progress, there is substantial Amendment Through Entrusting States work to do,” Scharf said Friday during a call Act, or STATES Act, which would exempt with analysts. Democrats’ companies complying with state marijuana Further tempering the reception to Wells laws from the federal pot prohibition. Fargo’s plan was the reality that much of the sweep helps Warren’s bill gives banks extra cover to anticipated cost savings are likely to be offset work with cannabis firms without the more by higher spending in other areas. In 2021, extreme step of blanket legalization. the company has identified $3.7 billion in pot banking’s Some analysts believe the Democrats’ efficiency initiatives, but it also expects $2.7 election sweep means they will attempt billion in new spending on compensation, cause, but passing the MORE Act before pursuing one of investments in technology, regulatory work the other two bills as a backup. and other items. “We are more likely to see legalization “There is ongoing fear, or risk, that the battle is far legislation attempted first before Congress amount of investment that’s needed is still an looks to the STATES Act as a fallback,” said unknown,” said Brian Kleinhanzl, an analyst from over Jaret Seiberg, an analyst at Cowen Washington at Keefe, Bruyette & Woods. “How much Research Group. “If you get legalization, you under-investing has been done in the last By Neil Haggerty won’t need special banking protections, decade-plus that needs to be caught up on?” January 18, 2021 because there won’t be any illegal activity at The market’s response was not uniformly WASHINGTON — Democrats’ control the federal level anymore.” negative. Kyle Sanders, an analyst at Edward of Congress and the White House has But, Seiberg added, if the Senate fails to Jones, noted approvingly that Wells Fargo brought financial institutions and cannabis pass either of those, “the spotlight then goes expects to realize much of the projected gross businesses closer than ever to legislation back to the SAFE Banking Act.” expense reductions in the coming year. enabling them to work together. But how A more welcoming political environment “I was pleased with what they put out exactly lawmakers enact pot banking reform for marijuana banking also raises the odds today,” he said. “Sooner is always better than has also become more complicated. that financial institutions will need to later.” For the past year, Congress debated a bill incorporate new compliance processes. This Though Wells’ to-do list includes projects barring regulators from penalizing banks and includes ensuring that any business they do that executives believe will result in expense credit unions that service marijuana-related with the legal marijuana sector complies with cuts totaling $8 billion, company officials also business in states where pot is legal. The anti-money-laundering rules, regardless of said that they believe additional savings can Secure and Fair Enforcement Banking Act any legislative reforms. still be found. was a compromise to attract support from “The biggest undertaking for a financial “It’s like peeling an onion back,” Scharf Republicans who oppose federal legalization institution interested in serving the cannabis said. “And so once you get a series of of pot. But it failed to clear the Senate. industry is detailed compliance protocols efficiencies, it helps you look at everything After the victories by President-elect and the staffing to implement them,” said else that’s left as well.” Joe Biden and Senate Democrats, some Rachel Pross, chief operations officer at the During the fourth quarter, Wells Fargo observers urge quick action on the legislation. Oregon-based Maps Credit Union, which reported net income of $2.99 billion, which Others say the change of power presents an already provides services to the industry. “At

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 5

Maps, we maintain a ratio of one full-time if they think a transaction is related to a are the cannabis businesses themselves. employee for every 40 cannabis business cannabis-related business. “It’s going to mean they have more options accounts.” “Fincen may include anyone who files for banking services, they’re likely to pay The cannabis industry has long been any type of marijuana-related limited or less in fees, and they’re going to be less seen as a golden opportunity for financial priority SAR, even if the SAR is a stretch or exposed to the risk of having their banking institutions, particularly community banks not entirely accurate,” said Kemmerling. relationship suddenly terminated,” Seiberg and credit unions, to expand revenue via “For example, maybe the compliance officer said. “If you’re a bank, ... you want the legal a growing sector. But regulatory concerns filed a marijuana SAR on a hemp or CBD protection. You don’t want the risk that about the federal marijuana ban have made company, possibly because he or she doesn’t there’s a change in administration and a many depository institutions nervous, really understand the difference between very different perspective on cannabis, and despite continued efforts by states to legalize marijuana, hemp and CBD.” suddenly, you’re going to face enforcement pot. Saphira Galoob, principal and CEO of the action and litigation.” “The legal market in this country was Liaison Group, said she thinks that “probably somewhere around $13 billion to $14 billion fewer than 100 financial institutions actively this year and is expected to go up next year, service the cannabis industry.” DIGITAL BANKING and the year after that,” said Fox. “And the Just in 2020, Arizona, New Jersey, South vast majority of that market is unbanked.” Dakota, Montana, and Vermont passed ballot As of June 2020, only about 500 banks measures expanding the permissible use of Morgan Stan- actively provided service to marijuana- marijuana. related businesses, according to the Financial “In Oklahoma, there are nearly 10,000 ley’s transfor- Crimes Enforcement Network. The cannabis active licenses for cannabis businesses and industry hopes that number will rise with fewer than 10 banks that serve them,” Galoob legal reforms, removing financial services said. “Florida has 307 licenses and fewer than mation chief obstacles for many companies that have four banks. had to seek alternative options for obtaining Galoob estimated that in some states, the pushes cloud credit, processing payments and storing disparity is wider. In Arizona, for example, funds. around 250,000 patients use medical Fox suggested a congressional effort marijuana as prescribed by a physician, but tech, diversity to legalize marijuana would likely hit the state only has three banks servicing the roadblocks in the short term, meaning a bill industry. “It is a disproportionate number By Miriam Cross like the SAFE Banking Act could still be the of financial services institutions correlative January 15, 2021 path of least resistance. to the size of the market and number of Morgan Stanley is moving quickly to the “It’s going to be pretty complicated and businesses,” Galoob said. cloud and prioritizing diversity initiatives in I think an ongoing discussion about what Don Murphy, director of federal policies at its technology group. exactly the best path forward is for more the Marijuana Policy Project, noted that the These efforts are the work of Sigal comprehensive legislation, but I think that marijuana industry has brought in billions Zarmi, the financial services firm’s first there is a very, very good chance that we are in sales almost immediately after states have head of transformation. She is focusing on going to see progress in the near future on legalized the substance. implementing cloud computing, artificial more incremental changes,” he said. “Illinois just topped $1 billion in sales,” intelligence and other technologies across Banks have spent years advocating for Murphy said. “Wouldn’t the banks love to its business units. More recently, she has Congress to pass the SAFE Banking Act. have $1 billion … in electronic transactions taken part in a reverse-mentoring program House Democrats passed that legislation going through their facilities?” in which diverse employees coach senior in 2019 with roughly 90 Republicans voting But even if the SAFE Banking Act or the leaders on where they experience bias. “yes.” But the Republican Senate leadership STATES Act were enacted, some are skeptical In an interview, Zarmi — who currently wouldn’t put the legislation up for a floor that banks are going to take on new clients serves as the global head of transformation vote. and see a windfall of new deposits. and international chief information officer, According to Fincen, only roughly 700 “I think the current calculus for most banks a dual role she took on in September — depository institutions currently service is that the cost of conducting due diligence, discussed her approach to transformation, the marijuana industry. And most of the and the potential for regulatory criticism, is the changes Morgan Stanley has made institutions serve the industry by imposing just not justified by the money to be made,” since the pandemic started and why reverse heavy fees on clients due to the AML said Ben Hutten, counsel at Buckley. “Until mentoring is a key part of combating bias. compliance and reporting burdens that they marijuana is no longer illegal under the The following transcript has been edited face. Controlled Substances Act, I’m not sure that for length and clarity. Steven Kemmerling, CEO of CRB Monitor, the SAFE Act or the STATES Act are going to said that the Fincen numbers could be result in a whole lot of traction.” How do you define your role as global inflated because banks and credit unions Seiberg said he still thinks that the main head of transformation? frequently submit suspicious activity reports beneficiaries of marijuana banking legislation SIGAL ZARMI: We define transformation

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 6 as making sure we are driving innovative, frontier and how technology is shaping our modern digital solutions to help our and other industries. CREDIT QUALITY businesses grow and succeed. My role is to build agility, optimize performance and What has Morgan Stanley been work- forge the right connections with our internal ing on during the pandemic? JPMorgan and external partners. When we think The pandemic is a very good example about transformation, we think about how of why we need to be nimble. In March we Chase: More we will build solutions that will withstand moved over 90% of our workforce to working the dynamic environment that changes all from home. We have rolled out collaboration the time. We want to be much more agile tools including Zoom, chat functionality and stimulus and leverage machine learning to increase document-sharing abilities. We implemented efficiency. We also have a cloud-first strategy solutions around electronic signatures for needed to that focuses on how we take advantage of our wealth management clients. In our cloud elasticity, meaning the cloud provides institutional securities group, our equity risk you with the flexibility to scale. group benefited from our investment in our prevent loan I also manage Morgan Stanley’s technology cloud-first strategy when we had our highest- footprint around the world. That means volume trading days ever in March and April. defaults focusing on talent, partner organizations, Our sales and trading teams were able to run our location strategy — we have tech centers twice as many risk calculations in the cloud. By Jon Prior around the world, from India to Hungary to January 15, 2021 Great Britain — and some big activities that What is Morgan Stanley’s approach to JPMorgan Chase borrowers are hanging in are happening outside of the U.S., such as diversity in technology? there — but more stimulus is needed to help Brexit. We appointed an individual to drive them ride out the coronavirus pandemic. diversity and inclusion within technology While the $3.4 trillion-asset company What is Morgan Stanley’s approach to in the fall. We have a lot of affinity groups released $2.9 billion in loan-loss reserves innovation? — women in technology, groups that lead in the fourth quarter, allowing it to record We have Centers of Excellence to identify LGBTQ activities, groups around race and a negative provision, executives cautioned where we want to focus first. Our Centers ethnicity. We have a return to work program that plenty of uncertainty remains with of Excellence drive adoption of advanced that is open to anyone who took a break credit quality. The release largely reflected an technologies such as artificial intelligence, from their professional career [whether it’s improved outlook for commercial loans and machine learning, cloud, data analytics and because of] family matters, illness or the mortgages; the allowances for credit cards automation across all business units. They need to take care of a loved one. We also run and auto loans were untouched. are teams of experts that provide guidance mentoring programs for all kinds of diverse Vaccines and new stimulus hold promise, and best practices around the adoption of talent, not just gender diversity. Recently we but their overall benefit to the economy those technologies. They also ensure that put in a reverse-mentoring program for our remains unclear. developers around the firm collaborate and most senior leaders in technology. Jamie Dimon, JPMorgan’s CEO, said benefit from each other’s experiences. during a Friday earnings call that he supports The members of our innovation group How does that work? the $1.9 trillion stimulus plan outlined by run our lab, organize hackathons and events I was assigned a diverse employee to be President-elect Joe Biden. around innovation, and bring up-and-coming my reverse mentor, and we have regular “We’re supportive of [the plan] not because technology in to be displayed for the rest of conversations. The focus is not so much for it’s good for the bank, but because it’s good the organization, such as digital currency or me to mentor this individual about career for American citizens,” Dimon said. blockchain, so we can understand what it is and networking, it’s for that employee to “Hopefully, by sometime in the summer, and how we can incorporate it into Morgan point out and discuss situations where they you could have a very healthy economy,” he Stanley. felt they were not included or where they added. “Sometime next year there will be a We also have external partnerships and experienced bias either in the organization or lot of focus on the debt and deficit, but let’s vendors. Now everyone is talking about in day-to-day life. You walk in someone else’s get through this now.” Zoom, but we implemented Zoom before the shoes and that brings to life a whole new Additional stimulus could help stave off pandemic. They were an innovation award set of experiences that you are not aware of, credit issues at the New York banking giant. winner at our annual TechWeek and CTO so the next time when you run across those “The bridge has been strong enough,” Innovation Summit in 2019 for being a true situations you are less biased. This has been Chief Financial Officer Jennifer Piepszak pioneer. Qualtrics was another award winner. going on for three or four months. We are said of existing relief efforts. “The question We’ve held events in Silicon Valley, like our doing it remotely, but it’s still powerful. remains: Is it long enough?” TechWeek and CTO Innovation Summit, Loan losses are not expected to rise “in a since 2000. We bring new ideas, startups and meaningful way” until later in 2021, and the fintechs together with our technology and stimulus package signed into law last month business leaders to talk about what is the next could keep problems at bay even longer,

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 7

Piepszak said during a call with reporters. Washington, Dimon said the company is now valuation of $14.5 billion — more than many Nonperforming assets fell by 5% in the looking at new markets like North Dakota. of the largest U.S. regional banks. fourth quarter from a quarter earlier to “The second I’m allowed, I’m on my way to Another fintech, Plaid builds the $10.9 billion, and the loan-loss allowance Bismarck or Fargo,” Dimon said. technology that allows apps such as Venmo was $30.7 billion on Dec. 31. About $24 and Betterment access consumers’ banking billion in consumer loans remain in deferral, data. Visa one of JPMorgan’s largest partners, representing a 17% decrease from the third FINTECH abandoned a deal to buy Plaid for $5.3 billion quarter and roughly half the amount reported after the combination drew scrutiny from over the summer. antitrust regulators. Net charge-offs decreased by 11% to Fintechs There are “people who improperly use about $1.1 billion. About 90% of cardholders data that’s being given to them, like Plaid,” who exited one of the company’s deferral competing Dimon said. “You can expect that there will programs are current on their payments. be other battles that take place here.” JPMorgan’s profit, aided by the negative Plaid said that “privacy and security are provision, increased by 29% increase from unfairly with core to everything we do, including the data- a quarter earlier to $12.1 billion. Earnings exchange agreements we have with JPMorgan per share of $3.79 beat the average analyst banks, Dimon Chase” and other banks. estimate tracked by FactSet Research Systems “At Plaid we’re focused on ensuring people by $1.17. have access to their own financial information The negative provision was notable, says so they can securely share it with permission industry observers said. in order to use the fintech apps they choose,” Jason Goldberg, an analyst at Barclays By Bloomberg News the company said in an emailed statement. Capital, wrote in a note to clients that he had January 15, 2021 “This is critical as people increasingly rely on expected another provision in the quarter, Fintechs, consider yourselves on notice. fintech to manage their finances.” while Brian Kleinhanzl at Keefe, Bruyette & JPMorgan Chase Chairman and CEO While many fintechs currently rely on Woods had forecast a much smaller reserve Jamie Dimon fired a warning shot Friday at companies such as JPMorgan to do business, release. any financial-technology upstarts that he Dimon sees a near future where they won’t “Overall, fundamentals are improving,” says are doing business unfairly. need banks at all. Kleinhanzl said. “There are examples of unfair competition, “I expect it to be a very tough, brutal While striking an optimistic note on credit which we will do something about competition over the next 10 years,” he quality, JPMorgan executives were more eventually,” Dimon said on a conference call said, adding that JPMorgan is scoping out restrained in their comments about loan with analysts. acquisitions and is “open” to making a demand. Total loans increased by 2.3% from Many fintechs pull in revenue through purchase in the payments industry, alongside a quarter earlier, to $1 trillion, reversing two hefty fees for debit-card swipes that banks organic growth in that space. “I expect to win, consecutive quarters of declines. such as JPMorgan aren’t allowed to charge. so help me God.” Credit card balances increased by 2.7%, The largest U.S. banks are constrained by the to $144 billion, while commercial loans rose controversial Durbin Amendment, which by 4.3%, to $550 billion. Those gains were limits the fees lenders can charge merchants EARNINGS partially offset by a 1.1% decrease in other each time a consumer swipes a debit card consumer loans to $319 billion. at checkout. But those rules don’t apply to Loan demand is unlikely to pick up in banks with less than $10 billion in assets. BofA’s Wall 2021, Piepszak said. For banks exempt from the rules, fees are JPMorgan is planning to open more around 54 cents per transaction, while banks Street unit branches in certain markets to boost that must comply with the amendment business. It aims to open 150 branches this charge around 22 cents, according to data year — after opening 90 in 2020. compiled by the Federal Reserve. It may seem falls short of To be sure, the company has been closing like pennies, but it adds up: Retailers typically more branches than it opens, with a net spend more than $100 billion a year to accept rivals during reduction of 68 locations last year. electronic payments. The value of the new offices was Digital banks with names like Chime have “extraordinary and underestimated,” seized on the opportunity, partnering with bumper year Piepszak said. “We’re optimistic that the smaller lenders to offer debit cards along strategy will pay off.” with checking accounts with fewer fees and By Bloomberg News “We still have almost 1 million people a features such as letting customers receive January 19, 2021 day visiting branches,” Dimon added. their paychecks a few days early. Chime, for Bank of America’s traders had a good year While last year’s openings focused in its part, has said it has 8 million accounts, — but not as good as their rivals. major cities such as Boston, Philadelphia and and last year raised $485 million, giving it a Revenue from sales and trading rose

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 8

7% to $3.06 billion in the fourth quarter, Capital One acquired the check cashing missing analysts’ $3.15 billion forecast. The ENFORCEMENT ACTIONS group in its 2006 purchase of New York- division, helmed by Jim DeMare, was hurt based North Fork Bank. The unit’s customers by unexpected weakness in fixed-income included dozens of check cashers in the trading. JPMorgan Chase, meanwhile, reaped Capital One New York and New Jersey areas, according a windfall from frenetic trading and volatile to a document that Fincen made public on markets during the pandemic. fined $290M Friday. Services that the unit included check Fixed-income revenue slumped “as weaker processing and armored car cash shipments. trading performance in macro products and Capital One acknowledged errors involving mortgages outweighed gains in credit,” the for ‘willful’ currency transaction reports, which banks bank said in a statement. are required to file with the government when Investment bankers and traders have anti-money- customers conduct cash transactions over carried the load for their firms this year as $10,000. The $422 billion-asset admitted that consumer divisions came under pressure it was negligent in failing to file the reports from the COVID-19 outbreak that shut down laundering on roughly 50,000 transactions totaling more businesses and put millions out of work. than $16 billion. After setting aside tens of billions of dollars to failures Capital One also admitted that it failed to cover potential loan losses during the crisis, file suspicious activity reports in connection the largest lenders have fared surprisingly By Kevin Wack with Domenick Pucillo, who owned well. They even got approval last month from January 15, 2021 numerous check-cashing businesses in the Federal Reserve to buy back shares. Capital One Financial has been hit with the New York area. Pucillo was described Bank of America said its board authorized a $290 million penalty after admitting Friday by Fincen as a convicted member of the repurchase of $2.9 billion of shares to the U.S. Treasury Department that it the Genovese organized crime family and through March, the most allowed under Fed willfully violated anti-money laundering the fourth-largest customer of Capital One’s guidelines. requirements between 2008 and 2014. business unit that served check cashers. Bank of America shares fell 1.6% to $32.48 The problems, which involved a unit that The bank learned in 2013 about at 7:26 a.m. in early New York trading. served cash-checking businesses and has potential criminal charges against Pucillo Investment banking fees jumped 26% since been shut down, were first revealed in New Jersey. Nonetheless, Capital One to $1.86 billion, beating the $1.62 billion years ago. But documents released Friday subsequently allowed Pucillo’s entities to estimate. The division, led by Matthew Koder, by Treasury’s Financial Crimes Enforcement conduct more than 20,000 transactions worth benefited from equity underwriting and Network contained new details, including roughly $160 million through 23 deposit mergers and acquisitions fees during the Capital One’s admission that it failed to file accounts, according to Fincen. quarter. suspicious activity reports even when it Capital One shut down the commercial The Charlotte, N.C.-based company’s net knew about criminal charges against specific banking unit that served check-cashing interest income, or revenue from customer customers. businesses in 2014. Five years later, Pucillo loan payments minus what the company pays “The failures outlined in this enforcement pleaded guilty to conspiring to launder depositors, decreased 16% to $10.3 billion. action are egregious,” Fincen Director money in connection with loan sharking Also in the fourth-quarter results: Kenneth Blanco said in a press release. and illegal gambling proceeds that flowed The efficiency ratio, a measure of “Capital One willfully disregarded its through his Capital One accounts, Fincen profitability, improved to 69% from 71% in the obligations under the law in a high-risk stated. third quarter. Net income fell to $5.47 billion business unit.” “Capital One’s egregious failures allowed from $7 billion a year earlier. It exceeded A Capital One spokesperson said in an known criminals to use and abuse our nation’s the $4.9 billion estimate of 12 analysts. Per- email that the McLean, Va.-based company financial system unchecked, fostering share earnings of 59 cents beat analysts’ 55- is pleased to resolve the matter, calling it criminal activity and allowing it to continue cent forecast. Total revenue decreased about the last remaining government inquiry into and flourish at the expense of victims and 10% to $20.1 billion. Bank of America said a now-defunct business, and saying that the other citizens,” Blanco said. “These kinds of its board authorized the repurchase of $2.9 firm was fully reserved to pay the nine-digit failures by financial institutions, regardless of billion of shares through March, the most penalty. their size and believed influence, will not be allowed under Fed guidelines. “Capital One takes its anti-money tolerated.” laundering obligations very seriously,” the Fincen said that Capital One took company spokesman said. “The bank has significant steps to cooperate with its invested heavily in the enhancement of its investigation and to remediate the problems, AML program over the past several years which it took into account in determining under new AML leadership, and has worked the size of the fine assessed. The civil money closely with regulators and law enforcement penalty totaled $390 million, but Capital One to ensure our compliance processes and was credited $100 million for a penalty that protocols are robust and thorough.” it paid to the Office of the Comptroller of the

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 9

Currency in 2018. accounts as “relationships.” The OCC imposed an enforcement action “An account isn’t a relationship! It’s FINANCIAL CRIMES on Capital One in 2015 in connection with a widget. We all sell them,” he said. “If a anti-money laundering compliance inside customer prefers getting their widgets from the same business unit. That consent order you, that’s a relationship.” CRM provider was closed in 2019. He often reminded me of lessons he learned from other store owners in that you Tier1 buys work for the customers, not the company BANKTHINK that processes your paycheck. When an employee is fair to customers, making them financial a top priority, that employee will succeed in Don’t lose any role. crime I’ve used some version of that theme sight of what many times while visiting front-line bankers by reminding them that the managers they software report to are not primarily who they work for. matters most: Front-line bankers actually work for vendor Alessa the people who are not being paid to visit The customer branches, answer phone calls or log-in to By Miriam Cross banking apps. When bankers strive first and January 15, 2021 By Dave Martin foremost to help customers succeed, they are Tier1 Financial Solutions, a provider of January 15, 2021 doing what best aids their own success. client relationship management software for The level of uncertainty within the banking In that line of thinking, I also remind banks and Wall Street firms, is broadening its industry is high. managers of whom their direct customers reach. Reorganizations of varying degrees are are. Those would be the people who report to The company announced Friday that it happening across the country. Managers them. If you help them succeed, you succeed. had acquired Alessa, a maker of compliance are adjusting and adapting to their own In times of uncertainty, it can be easy and fraud prevention software. Alessa is used challenges while attempting to keep their to lose focus on priorities. People begin to by banks, credit unions, fintechs and others teams focused and engaged. spend much of their time and mental energy to detect financial crimes starting from the In many cases, managers have found focused on things outside of their immediate point a customer is onboarded and over the themselves leading and/or being a part of control. When we focus on things outside of life of the relationship. If the software detects restructured teams. In some cases, decades- our control, there is a tendency to become risky or criminal activity, the company will old reporting structures and organizational demoralized. help banks report such activity to regulators. charts have been rapidly modified. Whether The beginning of 2021 is an opportune time The acquisition will let both companies these modifications were long in the planning to remind bank teams that while some things cross-sell to each other’s bases. or mostly reactions to unforeseen events, the will always be outside of our control, keeping “The name Tier1 implies focusing on the impacts are often the same. customers a top priority is always within enterprise banks,” said Jiro Okochi, Tier1’s I cannot recall a time during the past decade control. That is as true for middle and senior CEO. “But in October we launched an effort to in which more bankers have shared their managers as it is for customer-facing teams. democratize capital markets and investment concerns about the banking environment A simple gauge anyone can use is to reflect banking customer relationship management in general, and their changing career paths on how many times each week you ask some for any size shop. Alessa has done a great job specifically. It’s during disorienting times version of: of going after some of the middle-market as these that remaining focused on the right “How are you?” financial institutions, so it’s a complementary aspects of your job as a banker is more vital “How can I help you, today?” fi t .” than ever. Keeping those questions in the front of Okochi also values the opportunity to use A wise friend gave me advice almost 25 our minds allows us to learn things we likely Alessa’s artificial intelligence and machine- years ago that rings loud in my ears during wouldn’t have learned otherwise. In doing learning technology to help Tier1’s front- times such as these. The friend, who was a so, it helps bankers learn about their own office sales and trading clients and provide a bank director and clothes store owner, was customers in ways they likely wouldn’t have more digital, rather than manual, onboarding tasked with establishing an in-store branch otherwise. process for bank customers. program on an interim basis. Always remember who you truly work for. It “Our understanding these days is He was a true outsider and looked at things will give clarity in confounding times. compliance reaches more and more into the from an entirely different perspective than front-office workflow, where paperwork and most traditional bankers of the day. Dave Martin is a consultant specializing screening are more rigorous and more on At one point in a discussion about how to in retail banking strategies, including in-store the front end of the relationship than ever successfully run retail branches, he jokingly branches. He is the founder of the retail bank before,” he said. “The customer experience said it bothered him that banks referred to performance company bankmechanics. can be painful if the customer is waiting to

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 10 do their first transaction and the bank is still to serve on the Financial Services Committee — and I am confident they will help make processing paperwork.” though she received one last year. meaningful change and move our country Both companies have a significant The banking panel is considered to be an forward.” presence among North American financial “exclusive” committee; under caucus rules The selections follow weeks of intra-party institutions. lawmakers are required to get a waiver if they wrangling over the financial regulation posts Tier1 was founded in Toronto (it also has also are serving on other committees. between moderate Democrats and those on offices in New York and Sudbury, Ontario) Porter is a champion of consumer rights the party’s left wing who want to see a sharp and counts six of the top 10 Canadian banks known for her combative style and use of departure from business-friendly policies by assets as customers, including Bank of dry erase boards as visual aids. The former advanced during the Trump administration. Montreal. Overall, 75% of its bank customers professor at the University of California, They are bad news for the banking industry, are located in North America. About half of Irvine School of Law had served as California’s which has been bracing for the prospect Alessa’s financial institution customers are independent mortgage monitor from 2012 to of stiffer rules since Biden was elected in in North America. Alessa is also based in 2014. November. Toronto. Gensler, 63, is a former Discussions between both parties began Group partner who gained a reputation as in late fall, and the entire process happened CFPB a Wall Street scourge when he engaged in virtually — which both Okochi and Andrew bruising battles while advancing derivatives Simpson, chief operating officer of Alessa, regulation at the CFTC during the Obama say had its advantages, even though the two Biden picks administration. Chopra, 38, is an acolyte of teams have not yet met in person. Massachusetts Sen. Elizabeth Warren who “Trying to get an in-person meeting now FTC’s Chopra helped her set up the CFPB before she ran would be really difficult and takes time to for office. plan,” Simpson said. “Now we can say hey, Both nominees will be subject to Senate can we get an all-hands call in three hours or as CFPB chief, confirmation, and the SEC and CFPB are tomorrow. Previously that would have taken likely to be under interim leaders until that a couple of weeks to organize.” Gensler as process is completed. The chances of Gensler and Chopra winning confirmation were helped POLICYMAKING SEC chairman significantly by Democrats winning two Senate runoff elections in Georgia this By Bloomberg News month, resulting in a 50-50 split. The Katie Porter January 18, 2021 incoming vice president, Kamala Harris, President-elect Joe Biden has picked a will hold the tie-breaking vote should all off House pair of veteran regulators strongly backed Republicans oppose Biden’s financial by progressive Democrats to lead two key watchdogs. That could nullify any efforts by Wall Street watchdogs, signaling that his the powerful banking lobby to block Gensler banking administration is planning tough oversight and Chopra, whose nominations would go after four years of light-touch policies under before the Senate Banking Committee. panel: Report appointees of President Trump. Rohit ChopraIf confirmed, Gensler Former Commodity Futures Trading would take charge of an agency that some By Kate Berry Commission Chairman Gary Gensler will Democrats say has grown too cozy with the January 15, 2021 be nominated to lead the Securities and banking industry. He would immediately Rep. Katie Porter has lost her seat on the Exchange Commission and Federal Trade need to address market disruptions House Financial Services Committee after Commission member Rohit Chopra is being stemming from the coronavirus pandemic requesting to be seated first on two other tapped to lead the Consumer Financial and the escalating U.S. feud with China over committees, according to The Hill. Protection Bureau, Biden’s transition team public company audits. The California Democrat, a former law said Monday. “Gary Gensler is a proven champion of professor known for her sharp questioning “Our administration will hit the ground regulatory reform and brings deep expertise of executives and Trump administration running to deliver immediate, urgent relief in the markets,” former SEC commissioner officials, was turned down for a waiver to to Americans; confront the overlapping Robert Jackson said in a statement. “The SEC serve on the Financial Services Committee crises of COVID-19, the historic economic and the Nation will benefit from his wisdom by Speaker Nancy Pelosi, D-Calif., the paper downturn, systemic racism and inequality, and leadership,” said Jackson, who had been reported Thursday. and the climate crisis; and get this considered a candidate for the agency’s top Porter had asked to be considered instead government working for the people it serves,” job. for spots on the Oversight and Reform Biden said in a statement to Bloomberg Democrats will expect Gensler to push Committee and the Natural Resources News. “These tireless public servants will be for tougher enforcement and bigger fines Committee. She was turned down for a waiver a key part of our agenda to build back better for financial firms and executives accused

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY JANUARY 20, 2021 AMERICANBANKER.COM PAGE 11 of wrongdoing. He will also face pressure complexities of the financial system. to push companies to disclose political Because he is already a Senate-confirmed spending, climate-change risks and diversity official, Chopra could immediately become and inclusion. acting CFPB chief under a federal law for Gensler pressed for aggressive filling temporary vacancies. He would be implementation of the post-crisis Dodd- able to stay at the FTC while keeping the Frank Act and its provisions calling for CFPB post for about 300 days. q derivatives market reforms. He won over progressives for insisting on a tough © 2021 Arizent and American Banker. version of the Volcker Rule, which banned All rights reserved. proprietary trading by Wall Street firms, over stiff resistance from financial firms including Goldman, JPMorgan Chase and Citigroup. Under Gensler, the CFTC, long considered a backwater, became a major Wall Street regulator. At the same time, his hard- charging style left some staff exhausted and ultimately contributed to a push to unionize. That approach may be a challenge for Gensler at the SEC, which is more than five times the size of the CFTC. One person at the SEC who asked to remain anonymous said that staff there have noted that morale plummeted during his CFTC tenure. A survey of federal employees at the time named the derivatives regulator as one of the worst places to work among small agencies, giving it low marks for work-life balance, pay and quality of leadership. Still, few dispute the agency’s output while he was in charge. Gensler led the push for tough new restrictions on the over-the- counter derivatives markets. He oversaw a slate of new rules and enforcement actions. Many of the world’s biggest banks paid billions of dollars in fines for rigging a rate used to price everything from complex derivatives to mortgages. At the CFPB, progressives will be looking to Chopra to reinvigorate a regulator that they say has become a toothless version of the agency that he helped Warren create. In his first stint at the agency, he served as its student loan ombudsman. That experience could come in handy if he is to make good on Biden’s promise to crack down on private lenders that mislead student borrowers. The Warren-aligned Progressive Change Campaign Committee said the selection of Chopra was “a big win for consumers and a sign that executive power will be used to get tangible results for the American people.” One reason Chopra was picked, supporters say, is that he could start overturning some of Trump’s policies on Day One, ensuring that the CFPB returns to its focus on helping consumers deal with the

For up to date and complete coverage go to AmericanBanker.com