THURSDAY FEBRUARY 18, 2021 VOL. 186 No. 32 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Eugene Ludwig to step 5 down as Promontory CEO Most wanted The former comptroller of the currency, who founded the consulting firm known SVB Financial increased its offer for Boston Private for its roster of ex-regulators, will hand over multiple times before agreeing to buy the company for leadership of day-to-day activities to an operating committee as he pursues other $900 million projects. Page 6

Offer amount See story on page 2 Biden extends mortgage 6 forbearance and $1B foreclosure protections While the Mortgage Bankers Association hailed the move, some experts say it could $800M $900M negatively impact housing inventory. Page 7 $827M $760M Citi loses bid to $600M $662M recoup massive mistake $625M 7 in surprise ruling $400M Citigroup unexpectedly lost a legal battle to recover half a billion dollars it sent Revlon lenders, after the embarrassing blunder $200M forced it to answer to regulators and tighten Aug. 11 Aug. 18 Sept. 7 Nov. 23 Jan. 4 its internal controls. Page 7

Source: The companies (dates are approximate) Bank of America, Citi 8 trim CEO compensation for 2020 in year of restraint Bank of America and Citigroup trimmed dailybriefing A renewed call to compensation for their chief executives 3 break up big banks in 2020, a year in which banks exercised In a book that was decades in the making, restraint in compensating employees as the Fed governor backs revamp retired law professor Art Wilmarth tells the pandemic ravaged the economy. Page 8 1 of bank merger review process story of the Glass-Steagall Act — its origins, Gov. Michelle Bowman said the agency’s demise and aftermath. He also makes a case Goldman Sachs pledges analysis of certain deals should weigh the for restoring the separation between banks 9 $25 million to historically competitive threats posed by technology and securities firms, arguing that erecting Black colleges companies and nonbanks. Page 2 such a barrier would reduce systemic risk Goldman’s move follows similar initiatives in and weaken the big banks’ recent months by the biggest U.S. financial How joint venture political power. Page 3 firms.Page 8 2 negotiations led to a $900 million bank merger Morgan Stanley creates Western Alliance to buy The leadership at Boston Private Financial 4 bot that does junior 10 large mortgage lender Holdings wanted to establish a wealth analysts’ work — faster The Arizona company will pay $1 billion for management partnership with SVB Financial The AskResearch virtual assistant helps the the parent of AmeriHome Mortgage, which Group — but ended up striking a deal to sell company’s employees quickly find specific manages a $99 billion mortgage servicing the company to SVB instead. information buried in proprietary research portfolio. Page 9 (See chart above.) Page 2 to facilitate their work with clients. It’s a creative solution to data-retrieval problems many banking companies face. Page 4 THURSDAY FEBRUARY 18, 2021 AMERICANBANKER.COM PAGE 2

company too much control over a specific The $116 billion-asset SVB, the Santa Clara, M&A market. The Justice Department has also Calif., parent of Silicon Valley Bank, agreed asked stakeholders for input on whether it on Jan. 4 to buy the $10 billion-asset Boston would be “helpful to have joint guidance Private for $900 million in cash and stock. By Fed governor from the Antitrust Division and the banking sale price, the deal ranks among the 10 biggest agencies.” bank acquisitions announced since late 2019. backs revamp Bank regulators, including the Fed, Talks between the companies began nearly review merger applications for management a year ago and initially centered on plans to expertise, capital and safety measures, and establish a wealth-management joint venture. of bank other elements. They also examine the It took SVB nearly five months to present its impact on market competitiveness and can first proposal to buy Boston Private, according merger review refer concerns to the Justice Department. to a regulatory filing tied to the proposed merger. Boston Private also fielded inquiries from process M&A two other potential acquirers: a similar-sized bank with a “significant” wealth management By Hannah Lang business and an unnamed wealth February 16, 2021 How joint management and investment banking firm. WASHINGTON — The Federal Reserve Each company floated offers that were below should revamp its process for reviewing bank venture what SVB was willing to pay. mergers to address the competitive threat The filing also disclosed that while Boston posed by tech companies, Fed Gov. Michelle Private kept pushing SVB to increase its offer it Bowman said Tuesday. negotiations did not seek competing offers. “The board’s framework for banking The lack of an auction process is notable antitrust analysis hasn’t changed substantially led to a $900 because a big investor has been pressuring over the past couple of decades,” Bowman Boston Private for more details about said in remarks given for an American the decision to sell to SVB. HoldCo Asset Bankers Association event. “I believe we million bank Management in New York, which owns about should consider revisions to that framework 4.9% of Boston Private’s stock and is trying to that would better reflect the competition that merger get five nominees elected to the company’s smaller banks face in an industry quickly board, has expressed disappointment with the being transformed by technology and By Paul Davis deal’s value. nonbank financial companies.” February 16, 2021 The filing makes it clear that Boston Private The central bank is currently assessing The leadership at Boston Private Financial did not consider itself a seller prior to its the framework, Bowman said, months after Holdings wanted to negotiate a joint venture discussions with SVB. In fact, the company the Department of Justice said in September with SVB Financial Group — but ended up had spent the years before the pandemic that it would look to overhaul its bank merger striking a deal to sell the company to SVB considering potential acquisitions that would review process to account for new trends in instead. help build its wealth management business. the financial sector. “We have engaged in conversations and received feedback from community banks Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 about the Board’s competitive analysis Phone 212-803-8200 AmericanBanker.com framework and its impact on their business strategies and long-term growth plans,” she Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 said. “We are in the process of reviewing our Managing Editor Dean Anason 770.621.9935 approach, and we are specifically considering Reporters/Producers the unique market dynamics faced by small Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 community banks in rural and underserved Washington Bureau Chief Joe Adler 571.403.3832 areas.” Executive Editor, Technology Miriam Cross 571.403.3834 After the Justice Department announced Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 its review, industry participants and M&A BankThink Editor Rachel Witkowski 571.403.3857 experts speculated that possible antitrust- John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 related policy changes could favor smaller Hannah Lang 571.403.3855 banks, and could even slow consolidation. Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 The Justice Department sought feedback Digital Managing Editor on its process to determine whether a Christopher Wood 212.803.8437 Kevin Wack 626.486.2341 proposed merger would give the combined

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CEO Anthony DeChellis had preliminary SVB amended its offer on Nov. 13, proposing SVB’s offer eventually increased to $900 talks with the CEO of a similar-sized California a range of $740 million to $761 million, based million, and each board unanimously bank holding company in August 2019. But on Boston Private’s outstanding shares on Oct. approved the merger on Jan. 4. It was Boston Private’s board decided the other 31, with up to one-fifth of the purchase price announced later that day. bank, which was looking to fetch a market consisting of cash. The deal, which is expected to close in premium, wasn’t “a strong cultural or strategic The filing details the deliberations Boston mid-2021, priced Boston Private at 115% of its fit,” the filing said. Private’s board had in the final months of tangible book value. Boston Private’s discussions with SVB 2020 as it weighed the proposals from SVB, DeChellis, who will become CEO of began in March 2020, with talks between overtures from other financial institutions and private banking and wealth management at DeChellis and Greg Becker, SVB’s president the prospects of remaining independent. Silicon Valley Bank when the deal closes, is and CEO, initially focused on a wealth Boston Private’s board determined during a set to receive a $700,000 annual salary and a management partnership and other strategic Nov. 18 meeting that SVB had complementary chance to earn an annual cash bonus of up to alliances. While the companies entered into businesses, strong financial performance $805,000, the filing said. He could also earn an a confidentiality agreement to exchange more and a stock price that had “significant further annual equity incentive valued at $1.5 million. information, each had a different agenda. upside potential,” the filing said. Still, directors He will also be eligible to receive service- and “At this time, SVB was focused on wanted a higher price. performance-vesting restricted stock awards exploring a potential acquisition of Boston Becker indicated a few days later that SVB with a fair value of $7 million. Private, while Boston Private was focused on could pay $827 million. exploring a potential joint venture or similar The unnamed company that pitched business relationship that did not include an hiring DeChellis returned in late November, DE-RISKING acquisition,” the filing said. contacting Boston Private’s investment bank to SVB made its first pitch to buy Boston gauge the potential for a deal while expressing Private in mid-August, proposing a deal an interest in “an ongoing role” for DeChellis. A renewed valued at about $625 million, based on Boston The CEO told DeChellis on Dec. 4 that he was Private’s outstanding shares on July 31. The open to a deal valued at $864 million. call to break proposal valued Boston Private at about 82% “Following this conversation, no proposal of its tangible book value. or indication of interest was ever provided,” DeChellis told Becker on Aug. 13 that the the filing said. “And no further inquiries … up big banks amount was insufficient, prompting SVB to regarding a transaction were ever received by increase its offer to $662 million, or roughly Boston Private or its representatives.” By Kevin Wack 87% of Boston Private’s tangible book value. The filing makes no specific mention of February 16, 2021 Again, Boston Private deemed the amount to First Foundation in Irvine, Calif., which had Art Wilmarth’s new book, which makes a be too low. been “persistently” trying to engage Boston scholarly case for breaking up the nation’s Becker told DeChellis in early September Private about a merger, based on comments largest banks, is almost 40 years in the making. that SVB was open paying $760 million, equal attributed to Scott Kavanaugh, the company’s Wilmarth was a young banking lawyer in the to 100% of Boston Private’s tangible book CEO, in a recent letter that HoldCo sent to early 1980s when he first became interested value and a 54% premium to its stock price DeChellis and Steve Waters, Boston Private’s in the Glass-Steagall Act, the Depression-era at the time, depending on the results of due chairman. law that barred U.S. banks from engaging diligence. Kavanaugh said his last conversation with in securities activities. At the time, financial An unnamed bank with a “significant DeChellis took place “towards the end of industry lobbyists were pushing to repeal wealth management business” reached out November,” when he was told that Boston key provisions, an effort that finally came to to DeChellis in early September to discuss Private had no interest in selling, according to fruition with the enactment of the Gramm- a potential merger. The bank’s CEO also the HoldCo letter. Leach-Bliley Act in 1999. “expressed an interest” in hiring DeChellis to First Foundation, with $7 billion of assets “I went back and began to look at the run its wealth management operations, the and $4.9 billion of assets under management, history,” Wilmarth, a professor emeritus at filing said. would fit the filing’s description. George Washington University’s law school, DeChellis said “he was satisfied with his Boston Private told SVB on Nov. 27 that recalled in a recent interview. “I began to ask, current job as CEO of Boston Private,” the it would support exclusive negotiations if ‘Why are the banks trying to tear this down? filing added. SVB increased its offer to $905 million. SVB This act seems to me to make perfect sense.’ ” DeChellis received a call on Sept. 29 from responded on Dec. 4 with a cash-and-stock Wilmarth’s deeply researched book, an executive at a wealth management and offer capped at $864 million, which was “Taming the Megabanks: Why We Need a investment banking firm who expressed an good enough to secure a 30-day exclusivity New Glass-Steagall Act,” is a testament to his interest in buying Boston Private for about agreement with an automatic 15-day extension dedication to a topic that has only periodically $554 million. DeChellis told the executive if they were still negotiating in good faith. drawn close attention in Washington. that the price was too low, and “no proposal Discussions were advanced enough on The book includes an extensive historical or indication of interest was ever provided” by Dec. 27 that SVB sent DeChellis potential account that spans the financial market the company, the filing said. employment terms for after the deal closed. excesses that preceded the Great Depression,

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Glass-Steagall’s passage, the long campaign to and 1990s shows that regulatory walls are hard Philippon and Ariell Reshef, that shows a undo its restrictions and what has happened in to maintain. strong correlation between financial sector the two decades since the 1933 law was largely Still, Wilmarth argues that a bright-line deregulation and wages in the financial repealed. It also features a detailed proposal approach would be more effective than the industry. Wilmarth argues that bank for a 21st-century version of Glass-Steagall. alternative. His proposal would likely force compensation plans in recent years have Wilmarth argues that restoring Glass- the spinoff of the capital markets arms of essentially privatized profits and socialized Steagall would reduce the threat of contagion JPMorgan Chase, Bank of America, Citigroup losses. during a future financial crisis, and would also and Wells Fargo, as well as the banking arms of “During the first era of universal banking reduce the political power of the biggest U.S. Goldman Sachs and Morgan Stanley. — in the 1920s up to 1933 — financial- banks, which he sees as a worthy goal. He also wants new rules to prevent sector wages were very high compared to “Taming the Megabanks” was published nonbanks from funding their activities other industry wages,” Wilmarth said. “And late last year, amid a pandemic in which the through the issuance of short-term financial then, after Glass-Steagall was instituted, and U.S. banking sector has shown resilience, claims, such as money market mutual funds regulation became much stricter, you see and during a presidential campaign in which and commercial paper, that resemble bank financial-sector wages falling precipitously.” the restoration of Glass-Steagall was not a deposits. “Then, as soon as you get into deregulation, prominent issue. Still, the debate over breaking “Requiring all deposit substitutes to be and particularly the undermining and repeal up the big banks seems likely to regain issued by chartered banks would dramatically of Glass-Steagall, you see the financial-sector prominence whenever the next financial crisis shrink the shadow banking system by forcing wages skyrocket again.” hits. short-term financial claims to move from Wilmarth has seemingly encyclopedic President Biden has said that his vote to nonbanks to the regulated banking system,” knowledge about the history of U.S. bank repeal parts of Glass-Steagall was the worst vote Wilmarth writes. regulation, with the ability to recall small he cast in his entire 36-year Senate career. And Wilmarth offers several arguments for details about scandals that have mostly been a plan published last summer by a Democratic why Glass-Steagall should be reinstated. One forgotten. unity task force — members included both rationale is that it would reduce systemic “I’m biased against the big banks — I don’t Biden supporters and backers of Sen. Bernie risk. Another is that the new barriers would trust them. And so I’m inclined not to think Sanders of Vermont — called for maintaining remove conflicts of interest that he says make the best of them,” he said. Then he added and expanding safeguards that separate retail it impossible for universal banks to act as with a laugh: “But when you actually see this banking from riskier investments. objective lenders or impartial investment stuff from the inside revealed, you think, ‘I’m During his 2016 presidential campaign, advisers. A third reason is that it would actually underestimating.’ ” Donald Trump also expressed support for produce greater competition in the financial an updated version of Glass-Steagall, though system. he never seriously pursued the idea while in “A new Glass-Steagall Act would be likely to VIRTUAL ASSISTANTS office. encourage substantial inflows of deposits and The last big legislative effort to curtail risk capital into community banks,” he writes. at the large banks was the Dodd-Frank Act of Of course, the opponents of Glass-Stegall’s Morgan 2010, which largely relied on the discretion restoration have their own arguments. They of regulators to implement hundreds of contend that the new rules would put the U.S. Stanley technical reforms. Some rules required by the financial services industry at a disadvantage law, such as guardrails on incentive-based versus large banks in other countries, which compensation at banks, have never been would court the business of large American creates finalized. companies. They also argue that economies Wilmarth argues that Dodd-Frank’s of scale at big financial institutions would be bot that complexity undermines its effectiveness, eliminated, and note that bank customers since key provisions can be watered down, as would be forced to establish new relationships happened during the Trump administration. with multiple financial institutions. does junior “It did some good things, but it was never Wilmarth has rejoinders, but a big part of completely robust,” he said. “You’ve seen how his argument involves reducing the big banks’ analysts’ quickly it was dialed back with unsympathetic political clout. He believes that breaking up regulators.” the industry into three distinct sectors — Of course, the history chronicled in banking, securities and insurance — would work — Wilmarth’s book shows how financial rekindle political rivalries that existed until the industry lobbyists were also successful in late 1990s but have since diminished. faster gradually weakening the separation between “Each sector would serve as a strong commercial banks and securities firms counterweight against the political and By Penny Crosman that was established by Glass-Steagall. A regulatory influence of the others,” he writes. February 16, 2021 Congressional Research Service report in 2016 His book contains a striking chart, derived Technologists at Morgan Stanley have concluded that the history of the 1970s, 1980s from research by the economists Thomas developed a virtual assistant that helps

For up to date and complete coverage go to AmericanBanker.com THURSDAY FEBRUARY 18, 2021 AMERICANBANKER.COM PAGE 5 people throughout the organization plumb While someone is writing an email to a helping all of our analysts, junior and senior, useful information from the 50,000 research client in Microsoft Outlook, for instance, the be more effective in their roles and be more reports the investment bank generates every research bot would be there “kind of looking efficient in providing the information that year. over your shoulders and available to work one can get from different places together “Our research reports can be many, many with you to answer the questions that you quickly in one place. It is not replacing pages long,” said Eden Kidner, global head of may have,” Kidner said. anybody. It’s making them more effective at research technology at Morgan Stanley. “And the job that they do.” now we’re getting to the ability to actually A virtual junior analyst Casas was a junior analyst when she first find specific charts and paragraphs within Morgan Stanley started out using a started working at Morgan Stanley. the reports that answer questions.” platform from the messaging technology “Every day, with the amount of The bot helps employees find information company Symphony to create this research information available and the pressures buried in proprietary research, making digital assistant. of the market, there are more and more it easier for them write reports and serve The team fed the questions employees asks of our analysts, junior to senior,” she clients. The technology incorporates a were asking in the search bar of the bank’s noted. “So if you free up the time a junior search engine, text messaging, natural internal research portal into AskResearch. analyst will have to spend sending a model language processing and machine learning. They also fed in the answers that seemed or looking for a report, then that junior It’s the kind of useful implementation of to resonate with users, according to Amit analyst can dedicate that time to something artificial intelligence that could be applied Singh, vice president of institutional else, something new, something that can at any bank or organization that has troves of securities technology and the main architect enhance their platform.” unstructured data. In fact, Morgan Stanley for AskResearch. already uses AI to crawl through client The bot uses machine learning and Challenge: Extracting useful nuggets information to provide financial advisers natural language processing to become The hardest part of the project has been with “next best action” suggestions to make better at answering questions over time, figuring out how to dig the right nuggets of to clients. Kidner said. information out of reports that are dozens of “Software that helps knowledge workers The chatbot acts kind of like a junior pages long, Kidner said. be more productive, as opposed to analyst, said Jennifer Casas, executive “Trying to enable the bot to be able to find supplanting them, is of value, in this case director of research technology a specific paragraph, a chart or something sifting through many pages of research management, who leads client adoption of that sits deep within that research and distill reports to provide relevant, context- AskResearch. it up — that’s where the high value of this sensitive information that otherwise would “The chatbot is there to answer some of bot is,” Kidner said. “It’s also the biggest take significantly more time to retrieve and the more important but basic questions that challenge to solve for.” synthesize,” said Steve Rubinow, director of your team or your clients have,” Casas said. The data within the documents has to be the Institute for Professional Development The bot can answer simple questions tagged so the search engine can find it. at DePaul University in Chicago and former like, “Who covers Apple?” It will produce In the first phase, that has meant requiring chief information officer of NYSE Euronext. the name and contact information of the analysts to tag each element of their reports The AskResearch bot is an example of analyst, a biography and a list of all the as they write them. The team would like to banks ramping up the use of AI in different companies that analyst covers and the automate that content tagging to relieve the parts of their business. reports the person has written. analysts of that burden. It’s evaluating tools “What we are seeing on the AI side, The bot can retrieve earnings-per-share that could help. especially in natural language processing, is estimates for any company, or any of 50 The AskResearch bot is being used across really amazing,” said Brad Bailey, research other fundamental metrics the bank tracks all businesses at Morgan Stanley and is director for capital markets at Celent. “One or forecasts. It understands abbreviations available to all employees. aspect is the ability to get content from like GDP (gross domestic product), so they “We have deep usage from within our all types of structured and unstructured don’t have to be spelled out, and synonyms. sales, trading and research groups, and data and leverage that in numerous ways It understands multiple ways of asking we’re beginning to see people use it on our is a competitive edge and a huge benefit to questions. fixed-income side,” Kidner said. People are client service.” The answers can come in the form of mostly using it to help answer the questions When the team at Morgan Stanley created paragraphs and semistructured data from they get from clients. In the past, it typically the virtual assistant, it had two goals: to within research reports. took 10 minutes to go to the research portal help people in research and sales be more But while the bot can do some of the and find a piece of research, he said. With efficient and to make the information tasks of a junior analyst, Kidner said it is not the bot, the task takes less than a minute. in the company’s research reports more replacing junior analysts. The bot is answering more than 5,000 discoverable to internal and external clients. “It is very important to our organization questions a month from employees. In Eventually, they want to make the bank’s that we have junior analysts and that they the beginning, the most commonly asked research omnipresent — in other words, move through the organization,” he said. question was, “What does [Morgan Stanley have it follow people around as they’re “The way I think about the AskResearch CEO] James Gorman eat for lunch?” doing other things. bot, it’s kind of like a junior analyst, but it’s One question the team has grappled with,

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Casas said, is deciding whether to train the Clinton administration in the 1990s, will before, because it’s my firm belief that a big bot to answer irrelevant questions like the hand the reins of Promontory’s day-to-day segment of the future of advice is advice and Gorman-lunch one or, “What’s the weather activities to an operating committee co- implementation, and the implementation in San Jose?” chaired by Julie Williams, global head of will be increasingly technologically driven,” It’s possible to go to Google and retrieve strategy, and Chief Operating Officer Leslie Ludwig said. such information, but so far the team has Peeler. Williams was a longtime senior official Stepping back from Promontory will allow found answering such questions does not at the OCC and Peeler was previously a senior Ludwig to shift focus to other projects he has add value, Casas said. vice president at Fannie Mae. started in recent years, he said. In the second quarter, Morgan Stanley “There’s never a good time, you hate to “I’m not retiring,” he said. “Maybe some will begin rolling out the AskResearch bot to make changes, etc. But I wanted to look for people think I should. I’m not, ever.” clients, so they can use it directly. a time where the firm was in solid shape The Ludwig Institute for Shared Economic This will help clients find content they and cruising forward,” Ludwig, 74, said in an Prosperity, launched in 2019, is a research need, do their work more efficiently, which interview. organization dedicated to improving the will help make their relationship with “I learned that we had the leadership economic prospects of middle- and lower- Morgan Stanley stickier, Kidner said. already in the organization; one didn’t have income communities. The institute recently Eventually, AskResearch may have voice to look outside,” he said, referring to the began publishing a monthly report of the activation, like Alexa or Siri. It may be operating committee led by Williams and True Rate of Unemployment, or TRU, that embedded in other applications. Peeler. tracks unemployment based on hours “We do see a future where we see Ludwig, who founded the firm in 2001, will worked and annual income. AskResearch integrated into a broader continue to be involved with the company as The first issue, published in October, interaction, a lifetime chat between our chairman of Promontory, effective March 1. argued that “true” unemployment rate was clients and our analysts, introducing However, he will step back from day-to-day more than 26%, as opposed to the 7.9% AskResearch in other channels to be more operations. The firm’s roughly 650 employees reported by the Bureau of Labor Statistics effective and efficient,” Kidner said. were notified of the leadership change on during the same period. Unlike the BLS Wednesday morning. unemployment rate, TRU only considers Other members of the operating committee those working at least 35 hours a week and SUCCESSION PLANNING include Linda Gallagher, Promontory’s making at least $20,000 a year to be fully executive managing director of the Americas; employed. Vincenzo La Via, CEO of Promontory Europe; “One of the things I’ve learned is the Eugene Henry Raine, head of the firm’s London headline statistics we all live and dote on, office; Jeff Carmichael, head of Promontory’s created in a different age long ago, are Ludwig to Australasian business; and Louie Giacomini, accurate for what they say, but they are near- CEO of the firm’s managed services business. meaningless in terms of our modern world,” General Counsel Joyce Yette will serve as a Ludwig said. step down as senior adviser to the committee. He also co-founded a $545 million venture Promontory has advised banks and capital fund in early 2020 for “bank-friendly” Promontory other financial institutions around the fintech development, called Canapi Ventures. world on compliance changes, meeting the Ludwig will continue to run Promontory regulatory requirements of bank mergers MortgagePath, a mortgage fulfillment service, CEO and acquisitions, anti-money-laundering as chairman and CEO. controls and cybersecurity standards. Ludwig says he will continue to voice By Brendan Pedersen “I am really proud of this company,” his opinions about financial policy issues, February 17, 2021 Ludwig said. “We’ve saved good institutions namely strengthening supervision of WASHINGTON — Twenty years after from failing. We have helped good institutions nonbank financial companies. founding a bank consulting firm known improve their own controls infrastructure for “One big hole in the doughnut from Dodd- for its deep roster of ex-regulators, Eugene the betterment of people so that they get a Frank — the biggest hole in the regulatory Ludwig will step down as CEO of Promontory fair deal.” doughnut — is nonbanks,” he said. Financial Group at the end of this month. Since 2016, the firm has been owned by He added that he hoped the Financial In Ludwig’s two decades leading the IBM. The merger combined the technology Stability Oversight Council would resume company, Promontory has been a go-to for company’s innovations in artificialfocusing on companies that are systemically banks seeking insight on regulatory matters intelligence with Promontory’s deep bench of important. from a stable of former officials from the Office compliance experts. As part of the union, IBM “It cannot be that there is no large nonbank of the Comptroller of the Currency, Federal planned to have Promontory’s consultants financial [institution] in the United States” Deposit Insurance Corp., Federal Reserve, teach Watson about banking rules. that poses systemic risk, he said. Securities and Exchange Commission and Promontory is now “creating joint other agencies. products with IBM that we could not have Ludwig, who led the OCC during the done before and they could not have done

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“The real fear I have is in an effort to areas last year. The firm is also undergoing BIDEN ADMINISTRATION be overly charitable — and we need to a leadership change, with incoming Chief be charitable — that we’ll try to extend Executive Officer Jane Fraser set to take the and pretend a way through this problem,” reins on March 1. Biden extends Rood said. “The risk is you create a zombie housing market with no transparency into Boon to creditors mortgage who’s making their payments and how much “We strongly disagree with this decision shadow inventory is out there. That tends to and intend to appeal,” Danielle Romero- weigh on investors’ minds.” Apsilos, a spokeswoman for Citigroup, said forbearance in a statement. “We believe we are entitled to the funds and will continue to pursue a and COMMERCIAL LENDING complete recovery of them.” Robert Loigman of Quinn Emanuel, the law firm representing the investment firms, foreclosure Citi loses bid said the firm was “extremely pleased with Judge Furman’s detailed and thorough protections to recoup decision.” Revlon declined to comment. By Paul Centopani Citigroup briefly pared gains on the news, February 16, 2021 massive but its shares were up 1.2% to $64.39 at 10:23 With the end of the first 12-month CARES a.m. in New York. Act forbearance periods fast approaching, mistake in The decision, which Citibank will almost President Biden extended borrower payment certainly appeal, is a boon to the creditors, protections for federally backed mortgages. which have been locked in a battle with The administration pushed both the surprise billionaire investor Ronald Perelman’s forbearance enrollment deadline and the struggling cosmetics company over its May foreclosure moratorium on FHA, VA and ruling restructuring. They argued that the Aug. 11 USDA loans by three months to June 30, 2021. payment — Borrowers who entered forbearance prior to By Bloomberg News one of the biggest banking errors in recent June 30, 2020, will be allotted an additional February 16, 2021 memory — six months of coverage in three-month Citigroup unexpectedly lost a legal battle settled Revlon’s debt to them under a 2016 increments. to recover half a billion dollars it sent Revlon term loan, didn’t look like a mistake when it The announcement comes one week lenders, after the embarrassing blunder arrived and was theirs to keep. after the Federal Housing Finance Agency forced it to answer to regulators and tighten The creditors sued Revlon the day after allowed borrowers with mortgages backed its internal controls. the errant wire transfers, alleging that the by Fannie Mae and Freddie Mac to request U.S. District Judge Jesse Furman in New makeup company siphoned off collateral an additional three months of forbearance. York on Tuesday ruled that 10 asset managers for a $200 million loan it secured in 2019 as These combined efforts should protect for the lenders — which include Brigade it lost market share. They dropped the suit about 70% of U.S. single-family home loans, Capital Management, HPS Investment in November, reserving the right to refile according to the White House’s press release. Partners and Symphony Asset Management it, pending the outcome of the Citibank Forbearance plan exits noticeably slipped — don’t have to return more than $500 litigation. recently, which could lead to a considerable million that Citibank said it mistakenly challenge for the industry once the CARES Act transferred in August while trying to make an Lasting impact forbearance periods end. This week’s action interest payment. The ruling could also have a lasting impact provides nearly 2.67 million homeowners Furman found that the asset managers on the role administrative agents play in the who have taken advantage of the grace period shouldn’t have been expected to know syndicated loan industry by exposing them to with further clarity and time. the transfer was an error. “To believe that higher operational and regulatory risks. The Mortgage Bankers AssociationCitibank, one of the most sophisticated Furman said prior court decisions forced welcomed the extension, believing it financial institutions in the world, had made him to conclude that the lenders were necessary for borrowers and servicers a mistake that had never happened before, to entitled to take the money because they were alike. However, the measures could have the tune of nearly $1 billion would have been not aware that Citibank had make a mistake negative ripple effects on housing inventory, borderline irrational,” he wrote. when it sent the funds. potentially keeping hundreds of thousands Furman’s decision is the latest blow for “The transfers matched to the penny the and maybe millions of properties off the Citigroup, which is in the midst of a yearslong amount of principal and interest outstanding market that’s starving for inventory, Tim Rood, effort to update its underlying controls and on the loan,” he said in his decision. “The SitusAMC’s managing director of government technology after regulators slapped it with accompanying notices referred to interest and industry relations, said in an interview. a $400 million fine for deficiencies in both being ‘due,’ and the only way in which that

For up to date and complete coverage go to AmericanBanker.com THURSDAY FEBRUARY 18, 2021 AMERICANBANKER.COM PAGE 8 would have been accurate was if Revlon Dec. 16 with a warning. problems, with incoming CEO Jane Fraser was making a principal prepayment. And it “The industry should figure out a way of leading much of the remediation effort. appears that no mistake of the size or nature dealing with these things even if this was a Citigroup will cut bonuses for dozens of of Citibank’s had ever happened before.” black swan event,” he said. “Whatever my its top executives after the reprimands by The lenders can keep the money, pending ruling is in this case, I hope the world, the regulators, Bloomberg News reported last any appeal by Citibank, but can’t spend it, the market takes notice of what’s happened here month. judge said. and the uncertainties that have resulted.” Corbat was granted stock awards totaling A representative of HPS declined to The case is Citibank NA v. Brigade Capital about $12.3 million; a cash bonus of $5.3 comment. Brigade and Symphony didn’t Management, 20-cv-6539, U.S. District Court, million and a $1.5 million salary, the New immediately provide comment. Southern District of New York (Manhattan). York-based bank said in its filing. Moynihan received $23 million in stock Looked intentional grants and a $1.5 million salary, the bank At the trial, which was held by COMPENSATION said. While he hasn’t been given a cash bonus videoconference, executives of the asset since 2007, part of his stock award will settle managers testified that they had no reason to in cash when it vests. believe the wire transfers were an error. They Bank of Moynihan is steering the lender through said the sum was what they were owed, and another major economic slump after taking although the credit agreement required three America, the helm 11 years ago in the wake of the days’ notice for an early full payment of the global financial crisis. loan — Pandemic compensation has sown anger notice the recipients didn’t get — Citi trim CEO and division among higher-paid employees at Revlon and the bank had breached the the bank, who’ve pointed to underwhelming agreement before. compensation payouts and special bonus policies during The pair “had really thumbed their nose” at a bumper year for investment bankers and the pact, including in the May restructuring, traders. Meanwhile, lower-paid staff got extra Scott Caraher, head of loans at Symphony, for 2020 payments of $750. testified. The biggest U.S. banks have been frugal on Caraher described the relationship in year of pay as strains on consumer divisions counter between Symphony, Revlon and Citibank as a windfall from Wall Street dealmaking and contentious and complicated. trading. “It’s not that we didn’t want to return the restraint money,” he said. “We were just paid money that we were owed by a borrower and an By Bloomberg News DIVERSITY AND EQUALITY agent who were involved in a significant February 16, 2021 game of chess.” Bank of America and Citigroup trimmed compensation for their chief executives Goldman Clear error in 2020, a year in which banks exercised Citibank argued that the transfers were a restraint in compensating employees as the Sachs pledges clear error and that the firms had no right to pandemic ravaged the economy. them. Under questioning by a lawyer for the Bank of America reduced CEO Brian bank, a senior loan operations associate at Moynihan’s pay by 7.5% to $24.5 million, $25 million to Symphony testified that it’s standard practice it said Friday in a filing. Citigroup curbed to look into fund transfers made without compensation for outgoing CEO Michael historically notice and to return the money if it was sent Corbat by 21% to $19 million, it said. in error. He said he had seen money sent Both lenders cited the impact of the by mistake to his firm or to counterparties pandemic in considering the compensation Black before. levels. Bank of America’s board said it “We would review the wire, confirm it was evaluated the impact of the virus “on financial colleges a mistake” and, if “money was not owed, performance, its clients, communities and we would send it back,” he testified. Asked its own employees.” Citigroup noted the By Bloomberg News whether mistaken interest payments were “extraordinary effect” on macroeconomic February 16, 2021 common, he said they were. conditions in the U.S. and globally. Goldman Sachs Group said it would The error was a painful lesson for the bank, Citi also cited consent orders from commit $25 million to a five-year program which had to explain it to the Office of the the Federal Reserve and the Office of the aiding historically Black colleges and Comptroller of the Currency and the Federal Comptroller of the Currency for failings universities. Reserve. of technology infrastructure and internal In its first year, the initiative will include 125 The judge wrapped up the six-day trial on controls. The bank has vowed to rectify the students who will get training in fundamental

For up to date and complete coverage go to AmericanBanker.com THURSDAY FEBRUARY 18, 2021 AMERICANBANKER.COM PAGE 9 finance skills, the New York-based company servicing portfolio and has relationships said Tuesday in an emailed statement. with more than 700 correspondent mortgage “Diversity is an imperative for our originators, including mortgage lenders, organization,” Goldman CEO David Solomon credit unions and small and midsize banks. said on an earnings call in January. “This “We look forward to maximizing the remains a personal priority for me, and we strategic and financial opportunities created will continue to hold ourselves accountable by partnering with AmeriHome,” Ken to make further advancements, including Vecchione, Western Alliance’s president and through our new aspirational goals to drive CEO, said in a press release Tuesday. diverse hiring at more levels of the firm.” “Acquiring this differentiated, high- The bank said the new program is part performing mortgage platform provides of its diversity strategy of doubling campus a powerful growth engine and expands hiring of analysts from historically Black mortgage offerings to existing clients that give colleges by 2025. us flexible levers to drive consistent returns Goldman’s move follows similar initiatives throughout market cycles,” Vecchione added. in recent months by the biggest U.S. financial AmeriHome will become a unit of Western firms. Bank of America took equity stakes in Alliance Bank. Jim Furash, AmeriHome’s 12 minority depository institutions as part of president and CEO, will continue to run the a $50 million drive, while Citigroup pledged company after the deal closes. as much as $50 million in growth capital to Western Alliance said it expects the deal to MDIs and recruited more than a half-dozen be more than 30% accretive to its earnings per lenders to be part of a mentoring program share. Merger-related expenses should total to help them learn how to underwrite bigger $27 million, though Western Alliance said loans. Morgan Stanley pledged $24.6 million it expects to achieve $50 million in annual to three lenders. after-tax funding cost synergies. Western Alliance plans to raise about $275 million in the second quarter by selling M&A common stock. Evercore, Guggenheim Securities and Troutman Pepper Hamilton Sanders advised Western Western Alliance. Houlihan Lokey Capital, Wells Fargo Securities and Sidley Austin Alliance to advised AmeriHome. q

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By Paul Davis February 16, 2021 Western Alliance Bancorp. in Phoenix has agreed to buy Aris Mortgage Holding in Thousand Oaks, Calif. The $35 billion-asset Western Alliance said it will pay $1 billion in cash for the parent of AmeriHome Mortgage. The deal, which is expected to close in the second quarter, priced Aris at 140% of its tangible book value. AmeriHome, which has been a Western Alliance client for more than four years, bought $65 billion in conventional conforming and government-insured loans last year. It manages a $99 billion mortgage

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