TUESDAY MARCH 2, 2021 VOL. 186 No. 40 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Ag lenders more upbeat 5 as crop prices soar Soybean, corn and wheat are trading at their Remote-work effect highest levels since 2014, meaning farmers U.S. companies shed more than 80 million square feet of are more likely to catch up on loan payments and pursue expansions that require them to office space in 2020 take out more loans. Page 6 Net absorption/loss of office space, in square feet Wells Fargo promotes veteran See story on page 2 6 executive to new ESG post Geneviève Piché, who has worked in investment banking at the company for 20 80M years, will be in charge of helping corporate 60M 67.3M clients make environmentally and socially 40M 53.5M 54.6M responsible investments. Page 7 41.8M 40.0M 38.1M 20M 35.7M 25.0M 28.2M 0 13.5M Citi’s Corbat has parting words: ‘Banking is quickly changing’ -20M 7 Michael Corbat’s departure comes as -40M is facing fresh scrutiny from -60M regulators about its underlying technology -80M -84.0M and internal controls, work that will continue -100M on incoming CEO Jane Fraser’s 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 watch. Page 7

Source: JLL Bank of America will 8 book $400M expense for divisive bonus changes Bank of America will book a $400 million dailybriefing CFPB pick’s past expense in the first quarter to account for a 3 statements set stage for change in bonus policies that sparked anger testy confirmation hearing among high earners. Page 8 CRE lenders’ growing Rohit Chopra, President Biden’s nominee 1 fear: Office workers to lead the Consumer Financial Protection Merrill Lynch ramps up won’t come back Bureau, has not minced words in calling 9 wealth unit as rich Already contending with stressed retail, hotel out private companies for wrongdoing. He clients flock to Florida and restaurant loans, bankers are beginning could get a grilling from Banking Committee Several prominent companies to view office lending — historically a safe Republicans and some opposition on the are considering moving some business to bet — as increasingly risky as companies of Senate floor.Page 4 Florida, or are relocating outright. Page 8 all types rethink their space needs. (See chart above.) Page 2 Heat’s on lenders to Streamline bank rules for 4 reduce climate risk. 10 spotting sanctions violators Citigroup restates earnings Big question is how. Detecting business dealings with banned 2 after writing down Revlon loan Going green takes time, so lenders need to parties means screening a maze of Citigroup restated fourth-quarter results start revamping entire business relationships transactions, and Treasury’s Office of after writing down a portion of a loan to now, according to one sustainability-focused Foreign Assets Control supports calls for the Revlon it now owns after losing a court nonprofit. That process could include industry to take a risk-based approach. But battle. Page 3 setting environmental goals for fossil-fuels regulators effectively require banks to track companies and other customers that are everything, which is unproductive, Greg conditions for continuing to finance Baer writes in BankThink.Page 9 them. Page 5 TUESDAY MARCH 2, 2021 AMERICANBANKER.COM PAGE 2

edging up, new loans are dwindling and is expected to increase commercial real estate COMMERCIAL REAL ESTATE borrowing costs are creeping higher, all signs lending in 2021, executives said on a Jan. 21 LENDING that the business is growing riskier. call with analysts, but the focus will likely be on Now, many banks are planning to pull loans for multifamily and industrial projects. back from financing office projects this year, For now, the $33.4 billion-asset company CRE lenders’ executives said, and opinions vary on when, or is pausing on office, Paul Schmidt, head of even if, the office market will bounce back. commercial real estate at Associated Bank, growing “Everybody thought that office, even though said in a recent interview. people are clearing out and working from “It’s going to shift,” Schmidt said. “New home, that the leases are still in place and that office development is certainly going to slow.” fear: Office market would hold up,” said Matt Anderson, Roughly 20% of Associated’s commercial a managing director at the data analytics firm real estate lending business is tied to office workers won’t Trepp. “Now, there have been some cracks in space each year, but in 2020 that dropped that theory.” to 15% and this year it is likely to fall to 10%, Schmidt said. come back ‘Work-from-home is here to stay’ To be sure, the dropoff in CRE lending Slightly more than 84 million square feet has been dramatic across all sectors. Banks By Jon Prior of office space went from occupied to empty originated less than $4.7 billion of total February 28, 2021 in 2020, according to data from the real estate commercial real estate loans during the fourth Dan McNamara has been to his office at a firm Jones Lang LaSalle. That drop is especially quarter, down 22% from the third quarter and hedge fund in only a handful of times stark when compared with the 67.3 million half the level seen a year earlier, according to since the coronavirus pandemic was declared square feet of increased occupancy in office Trepp. in March 2020. space the year before. And it’s the first time Office lending last year, in particular, ran On the days he did go into the office, he in more than a decade that the company’s at about 21% of the average production pace would look around at all the empty floors in researchers recorded occupancy losses at all. in 2019, Trepp data showed. By contrast, buildings across Manhattan and couldn’t help About half of the space that went unoccupied multifamily originations were at 70% of 2019 but wonder if the pandemic had fundamentally was abandoned in the fourth quarter alone, the levels and industrial loans were at 66%. changed companies’ need for office space. data shows. “Out of all the commercial real estate It didn’t take him long to conclude that it Delinquencies on office debt have so far sectors, the future of office is the most had. been kept in check as companies have largely difficult to discern,” said Cal Evans, who does A principal at MP Securitized Credit been paying their leases, even on space that credit intelligence for Synovus Financial in Partners who specializes in trading commercial now sits empty. The delinquency rate on Columbus, Ga. “But the reality is work-from- mortgage-backed securities, McNamara last office loans on bank balance sheets did tick home is here to stay.” year helped create an investment vehicle to up, however, to 0.44% in the third quarter last Evans had been scheduled to speak at a make short bets on bonds backed by CRE year from 0.27% three months prior and about conference Synovus was hosting in Miami on loans, including office loans. The thinking quadruple the rate one year before, according March 11 of last year. The company had been was that office workers would not be rushing to Trepp data. monitoring the increasingly troubling spread back into high-rises even after the virus fades, Associated Banc-Corp in Green Bay, Wis., of COVID-19 and decided to call off the event. resulting in climbing office vacancies and falling property values. The fund has already generated a 120% return to investors. Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 “It’s not going to be a complete debacle Phone 212-803-8200 AmericanBanker.com that regional malls are, but there will be some problems,” said McNamara, whose firm first Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 gained notoriety shorting securities tied to mall Managing Editor Dean Anason 770.621.9935 loans. The office market has traditionally been Reporters/Producers one of the safest bets in real estate finance, but Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 now lenders and investors “have to be very Washington Bureau Chief Joe Adler 571.403.3832 careful,” he said. Executive Editor, Technology Miriam Cross 571.403.3834 The commercial real estate industry and Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 the banks that support it have grappled with BankThink Editor Rachel Witkowski 571.403.3857 the demise of brick-and-mortar retail spots John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 and stockpiled reserves for losses from hotels Hannah Lang 571.403.3855 quieted by the virus. But at the end of last Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 year, problems started showing up in the Digital Managing Editor office sector. More square footage is going Christopher Wood 212.803.8437 Kevin Wack 626.486.2341 unoccupied, delinquencies have started

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Evans could see instantly the dollars lost across Fitch said in its report. He said some CEOs have told him they’re commercial real estate, hotels, convention Stacey Berger, an executive vice president of eager to bring workers back into the office, centers and offices. the special servicing company Midland Loan believing it will give them a competitive “Right then I knew we were going home and Services, said that in the office sector, loans tied advantage over rivals keeping employees at this was going to be significant,” he said. to shared co-working spaces are those most in home. Such sentiments are stoking optimism Like Associated, Synovus is taking a need of special servicing. in real estate circles that the office market cautious approach to office lending. What Banks and servicers have been able to offer could soon return to normal. business is done might be focused in the less- payment deferrals and other workouts without “We hear stories of people working 12 hours crowded suburban markets of the company’s being penalized by examiners, according a day on a beanbag,” Murray said. “It’s not good footprint in the Southeast, Evans said. There to a March 2020 bulletin from the Federal for them.” could also be opportunities for lenders to offer Deposit Insurance Corp. and the Office of the Murray said it might take until next year, but financing to companies that are tapping so- Comptroller of the Currency. he believes there will be an opportunity for called mezzanine debt to keep paying on their Scott Siefers, an analyst at Piper Sandler, banks to help finance the reimagining of U.S. office loans and leases. Even further out, Evans said regulators will eventually force banks office space. said, there might be more demand for loans to to account for the damage, but that it’s still As he sees it, people have a fundamental retrofit offices with better healthcare measures uncertain when that will be. need to be around each other to accomplish like safety glass, redesigned floor plans to “Regulators have been ultraflexible to let projects that can’t be done over Zoom. Those give employees more space and air filtration them work with borrowers and not mark them employees returning could need more, not systems. down,” Siefers said. “At some point that will less, space, to be with their colleagues while “Property technology for building s t o p.” still adhering to social distancing guidelines management systems will replace luxury For property owners, the cost of borrowing that are likely to stick around for a while. amenities,” Evans said. is increasing. Office space will also need to be more Any new lending will also require a more- Readings International, which operates inviting, Murray said. detailed set of underwriting guidelines to movie theater brands like Angelika and “The days of a task-focused cubicle and no account for which companies will be leasing manages other properties, was in the middle natural light are over,” he said. “We weren’t out a new office building and how committed of leasing up a retail and office building under thinking about what the space was for and they are to maintaining a work space, Schmidt construction in New York when the pandemic were expecting people to show up to pretty at Associated said. hit. Its lender, Bank OZK in Little Rock, Ark., banal places. That needs a rethink.” “You need to spend more time analyzing the granted an extension of the maturity date on tenant base than we would have in the past,” the loan by several months to March 31, 2021, Schmidt said. “You want to make sure those according to a Jan. 11 filing from Readings. The EARNINGS who have signed the leases are in an industry interest rate, however, increased to 17.5%. that wants and needs office space.” The deal gave Readings time to find a suitable Schmidt said he remains optimistic that the way to refinance the debt, the company said Citigroup need for office space will come back, just in a in the filing, but it also highlighted how much different form. banks are now pricing in risk. restates “We seem to forget the past and move Banks at one point were charging on average ahead,” he said. “For that reason we’re taking three percentage points more on office loans a wait-and-see attitude. Some companies are they hold on their balance sheets compared earnings after continuing to pay rent. They don’t want to give to rates on ultrasafe U.S. Treasury bonds in the it up.” first quarter, according to data from Trepp. This writing down difference more than doubled from the end of The office ‘needs a rethink’ 2019, a sign that banks suddenly viewed the In the second quarter of 2020 alone, $35.5 office sector as much riskier than they did a Revlon loan billion in CMBS debt fell into what’s known as year earlier. special servicing, when control of the loan is While the spread has since come down to By Bloomberg News taken over by a company that works out a deal a little more than 2 percentage points above March 01, 2021 with the borrower in order to avoid a costly Treasury rates as some firms have reopened Citigroup restated fourth-quarter results foreclosure, according to the most recent data offices, the spread on office loans is still higher after writing down a portion of a loan to Revlon from Fitch Ratings. than what’s being charged on loans from other it now owns after losing a court battle. Hotel and retail loans accounted for the sectors like industrial, multifamily and even The bank said in a regulatory filing on vast majority of the transfers, but office loans retail properties, according to Trepp. Friday that it now has rights as a creditor to the made up the third-highest share, at 8%, and Neil Murray, who took over as chief executive troubled cosmetics giant after it lost a court researchers expect that figure to increase. of Jones Lang LaSalle’s corporate solutions battle over a payment mistakenly sent to a “Future transfers to special servicing will business about a year before the pandemic band of lenders to Revlon in August. It’s since likely be driven by loans secured by office and hit, helps companies and many banks manage written down a portion of the loan. retail properties, given longer-term leases,” their portfolio of commercial real estate debt. Separately in the filing, the bank said losses

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“related to certain legal matters” forced it to Bureau, doesn’t mince words about corporate who issued press releases creating headline boost operating expenses in its institutional wrongdoing. risk for large public companies. Chopra’s chief clients group by $390 million in the fourth As a Democratic member of the Federal of staff at the FTC, Jen Howard, had been the quarter. That meant Citigroup’s net income Trade Commission appointed in the Trump CFPB’s assistant communications director for the final three months of the year came to administration, he lambasted Amazon under Cordray. If Chopra is confirmed, she is $4.3 billion, compared with the $4.6 billion it for “cheating its workers” over its policy expected to become the CFPB’s chief of staff, reported in January. for tipping drivers, and said wireless data sources said. Citigroup was trying to send a periodic plans offered by AT&T “victimized millions “He will be at least as aggressive as former interest payment to a group of Revlon’s lenders of Americans,” among a long paper trail of Director Cordray, if not more so,” said Lucy in August when instead it transferred $900 nearly 120 public statements. Morris, a partner at Hudson Cook and a million, an amount equal to the full principal Such comments could influenceformer CFPB deputy enforcement director of the loan plus interest. Republican lawmakers weighing how to who worked with Chopra in the CFPB’s early “After a careful assessment of the incident, vote on his nomination, and could make years. “His statements are very hard-hitting Citi immediately put in additional controls for a heated confirmation hearing Tuesday and the language is quite charged.” to prevent similar loan disbursement errors when the Senate Banking Committee His public comments and tweets provide in the future, while also embarking on a questions him as well as the administration’s a road map for how he would govern as the major upgrade of the loan infrastructure and nominee to run the Securities and Exchange nation’s top cop for enforcing consumer controls,” the bank said in Friday’s filing. Commission, Gary Gensler. financial laws. While some lenders opted to return “His opinions as FTC commissioner are “He has a very lengthy consumer roughly $389.8 million, the bank sued 10 fund pretty revealing,” Alan Kaplinsky, senior protection record,” said Linda Jun, senior managers to recoup the remaining funds. counsel at Ballard Spahr, said of Chopra. policy counsel at the Americans for Financial After a trial that was closely watched Unlike former CFPB Director Kathy Reform Education Fund. “He believes in across Wall Street in December, Citigroup Kraninger, a Trump appointee who had no meaningful accountability. When people are unexpectedly lost the case earlier this month. previous experience in consumer finance, harmed and companies break the law, he The bank continues to believe it is entitled to Chopra’s consumer protection background thinks there needs to be consequences.” the funds and has said it will appeal. includes not only his time at the FTC but Chopra, 38, has taken particularly Separately on Friday, the firm said regulatory also a prior stint at the CFPB as the bureau’s aggressive stands on FTC enforcement when agencies in the Asia Pacific region are probing student loan ombudsman. it comes to large technology companies. the firm’s equity sales trading desks. In contrast to Kraninger’s more middle- Earlier this month, when the FTC ordered The probes are tied to facilitation trades, or of-the-road approach seen as kinder to the Amazon to pay $62 million to settle charges transactions in which the bank “trades fully industry, Chopra’s writings show he isn’t that it withheld tips from delivery drivers, or partially as principal,” Citigroup said in the afraid to publicly call out bad behavior. Chopra issued a statement saying “Amazon filing. The firm said it is cooperating with the “If he thinks something is wrong and stole nearly one-third of drivers’ tips to pad investigation. executives have acted in an egregious fashion, its own bottom line.” he will go after them,” Kaplinsky said. “He is In 2019, when AT&T Mobility agreed to pay not going to suffer fools kindly.” $60 million to resolve FTC allegations that it ENFORCEMENT As a Democrat, Chopra has served on misled consumers about its wireless data the FTC under a legal construct requiring a plans, Chopra wrote that the carrier “trapped minority of appointees on regulatory boards subscribers” in “a bait-and-switch scam.” CFPB and commissions to come from the party “AT&T baited subscribers with promises other than the president’s. Nominated by of unlimited data, trapped them in multi- pick’s past then-President Donald Trump in 2018, he year contracts with punishing termination sailed through Senate confirmation, which fees, and then scammed them by choking was approved unanimously by voice vote. off their access unless they moved to a more statements set But his aggressive past statements coupled expensive plan,” he wrote. with the power and high profile that comes In 2019, Chopra dissented from the FTC’s stage for testy with the CFPB job could lead to some pointed $5 billion settlement with Facebook over questions from GOP lawmakers at his charges that the company deceived users hearing, and potential opposition from some about their ability to control the security of confirmation members on the Senate floor. Democrats their personal information. hold a razor thin majority, with Vice President Chopra said he believed Facebook’s hearing Kamala Harris casting a tiebreaking vote. exposure likely was far greater, that the FTC’s Some critics may bristle at Chopra’s use of offer of immunity to Facebook’s officers and By Kate Berry more inflammatory language about business directors was “a giveaway.” February 26, 2021 malfeasance than the tone set by Kraninger. “Because behavioral advertising allows Rohit Chopra, President Biden’s nominee To some observers, Chopra is reminiscent advertisers to use mass surveillance as a to lead the Consumer Financial Protection of former CFPB Director Richard Cordray, means to their undisclosed and potentially

For up to date and complete coverage go to AmericanBanker.com TUESDAY MARCH 2, 2021 AMERICANBANKER.COM PAGE 5 nefarious ends, Facebook users are exposed to will often dovetail with the administration’s propaganda, manipulation, discrimination, focus on addressing systemic racism issues.” ESG and other harms,” he wrote. Last year, Kraninger issued new guidance Yet at the same time, Chopra has also taken defining what constitutes an “abusive” act. stances that support free markets, reflecting “I’m sure we’ll see a reversal of that Heat’s on an interest in finding common ground with [abusive standard] quickly,” Goldenberg said. his detractors. Discrimination and racial equity issues are lenders “Government has long sought to create another area where the CFPB, in alignment laws and regulations to structure and with the Biden administration, plans to facilitate marketplaces that function well,” he crack down hard on financial firms. Chopra to reduce said in a 2018 speech. “Laws that safeguard has written extensively about how agencies an individual’s ability to contract and possess should handle unintentional discrimination. climate risk. property are foundational to functioning He will also likely be skeptical of lenders’ use markets.” of artificial intelligence and alternative credit Those who have worked with him says his data to underwrite borrowers. Big question aggressive approach his policy-focused, not In a case last year in which the FTC personal. alleged a Honda auto dealer in the Bronx, is how. “He’s very thoughtful, he thinks about N.Y., illegally discriminated against Black things in a systematic way and he’s really and Hispanic families by charging them By Laura Alix thinking broadly about how to use the higher interest rates than white customers, February 26, 2021 bureau’s authority,” Morris said. Chopra wrote that “disparate impact analysis Environmentalists have called on banks At the FTC, he has criticized the agency is a critical tool to uncover hidden forms of to disclose the climate risks associated with for not using all of the tools in its arsenal to discrimination.” their lending activities, but the short-term enforce the law. “With the proliferation of machine learning nature of most commercial lending makes it “Breaking the law has to be riskier than and predictive analytics, the FTC should tough to tell what that risk could look like a following it,” he wrote in one dissent. make use of its unfairness authority to tackle decade later. In another, he said: “I continue to be discriminatory algorithms and practices in Instead, bankers should examine the concerned that the FTC does not use its the economy,” he wrote. entirety of their corporate client relationships authority to the fullest extent possible to Acting CFPB Director Dave Uejio already and work with those clients now to reduce combat marketplace abuses. This is another has laid out an aggressive agenda. Judging their long-term risk, a nonprofit focused missed opportunity for the Commission.” by Chopra’s FTC comments, auto lenders are on corporate sustainability argues in a new Chopra served five years as the CFPB’s likely to be targeted by the CFPB, along with report. Bankers should also adopt 10-year first student loan ombudsman and often student lenders, mortgage servicers and debt time horizons for risk management and 10- testified on Capitol Hill. Before joining the collectors. The agency will likely also take a year financing plans for each commercial CFPB, he spent two years as an associate stricter posture toward consumer lenders, sector, the Boston-based Ceres says. at McKinsey & Co. A graduate of Harvard including banks, that are seen scamming If bankers approach de-carbonization University, he received a master’s degree in immigrants, the elderly and military service from a relationship-banking perspective, business administration from the University members. they have a better chance of holding onto of Pennsylvania’s Wharton School. Large banks and financial companies client relationships and capitalizing on new Two issues certain to rankle banks, lenders, engaged in wrongdoing should also be on opportunities, the group said. industry trade groups and Republicans are alert, lawyers said. “These relationships run deeper than any his positions on fair-lending violations and Higher-profile businesses “are going to get given transaction, both in duration and in enforcing the federal prohibition on “unfair, a lot more attention and publicity than going value to the bank,” said Dan Saccardi, a senior deceptive or abusive acts or practices.” after some fly-by-night scam artist company, director at Ceres and one of the authors of the Chopra would likely revive the CFPB’s use which Kraninger did go after,” Kaplinsky said. report. “Therefore, it shouldn’t be a decision of “disparate impact,” a legal standard used “We’re going to see a lot more targeting of about any given piece of financing but about to punish lenders that unintentionally larger institutions and the bigger banks in the the more holistic implications for the bank discriminate against minorities. Meanwhile, way Cordray did when he came in and went and for the client about continuing or not many expect he will apply the UDAAP ban after every large bank for credit card add-on continuing to do business together.” more broadly than Kraninger did. products,” he said. “I expect [Chopra] is going In part because of pressure by “I think we will see a reversal very quickly to be looking for something big to send a environmentally minded activists and of former Director Kraninger’s policy message to everyone that the Kraninger era investors, some big banks have taken concerning abusive acts and practices,” said is over.” initial steps to mitigate climate risk in Robert Goldenberg, counsel at Reed Smith. their portfolios. Bank of America, TD Bank “There is going to be a more aggressive Group and Morgan Stanley, for example, approach and greater scrutiny paid under the have announced plans to achieve net new administration, and I think this approach zero greenhouse gas emissions from their

For up to date and complete coverage go to AmericanBanker.com TUESDAY MARCH 2, 2021 AMERICANBANKER.COM PAGE 6 operations and business activities by 2050 Ceres also quotes Chase Savage, an fall and now — farmers’ cash flow changes in alignment with the Paris Agreement. environmental-social-governance research for the better quickly,” said Shan Hanes, And JPMorgan Chase established a Center analyst at Fidelity Investments, who president and CEO of Heartland Tri-State for Carbon Transition aimed at helping suggested banks could show clients a 10-year Bank in Elkhart, Kan. “That’s ultimately good corporate clients adjust their long-term financing plan for their sector and ask how news for everybody around here.” business strategies. they’d like to fit in instead of asking them to A majority of the $133 million-asset Big banks are making progress at de- work around a list of restrictions. Heartland Tri-State’s loans involve risking, but it’s slow. Nearly 15% of shared “The next step is to have a much more in- agriculture — either directly to farmers or credit provided by the 12 largest banks in depth client experience,” Savage said in the to businesses that work with farmers. When syndicated lending was extended to fossil- report. low commodity prices coincided with the fuels companies, according to data in the Banks might also adjust the pricing of pandemic last year, the farm economy report covering the years 2000 to 2018. That is certain products and services to better reflect appeared as though it would shift from fragile down from around 20% during the financial climate risk, the report said. This can also help to bleak, Hanes said. crisis yet still well above 8.6% in 2001. corporate clients to make the business case “It looked like maybe a depressing time In October, Ceres released a report for transition away from fossil fuels. Moreover, was settling in,” he said. suggesting that U.S. banks may be bankers could prioritize sectors in which they Farmers got a reprieve in 2020 in the form underestimating the climate risk in their may have the most valuable relationships or of a record $46 billion in direct payments lending and investment portfolios. Its new which may need the most time to minimize from the federal government to offset losses report attempts to establish a road map for their environmental impact. tied to the pandemic and the trade war. That banks to deal with transition risk, or the risks Some big banks have already begun to staved off a rise in delinquent loans and resulting from an abrupt transition away from take those kinds of actions, the group said, effectively bridged the farm economy to the fossil fuels. quoting one former banker current price-fueled rebound, according to As an example, a lender could work with a who said: “Fossil-fuel valuations have Hanes. transportation company now to ensure it can collapsed already. … The [leading] banks see The Department of Agriculture said it upgrade its fleet to lower-emissions vehicles what’s going on. … They are not looking back, expects farm income will total $111.4 billion over the next decade, rather than wait for they’re looking forward.” in 2021. That would mark an 8% decline from regulation to nudge the company in that last year, but solely because of the record direction. government support in 2020. The current Some industry voices say many banks COMMUNITY BANKING year projection would exceed by 21% the are already starting to have those kinds of 2000-2019 average despite an expectation for conversations with corporate clients. farm subsidies to decline by 45% from last “Companies aren’t going to be able to flip a Ag lenders year, Seth Meyer, USDA chief economist, said switch to go from brown to green tomorrow,” at a virtual forum in February. That, he said, said Lauren Anderson, associate general more upbeat means cash income from crops is likely to counsel for the Bank Policy Institute, which surge this year. represents the nation’s largest banks. “It’s Meyer said demand for U.S. crop exports going to be a multiyear process, and we would as crop prices is “remarkably strong” even “in the face of rather see those relationships evolve and be rising prices,” and the 2021 outlook is bright maintained. … I think it’s entirely correct that soar enough that the industry is on sound footing this has to be looked at holistically.” without lofty government subsidies. Anderson also said that some of the BPI’s By Jim Dobbs Hanes said it will take time for farmers’ members were early adopters of PACTA, an February 25, 2021 newfound prosperity to translate into open-source scenario-analysis toolkit that Renewed export demand from China and spending on everything from new equipment helps banks to understand how closely their tight domestic supplies are pushing up prices to higher-quality fertilizer — and, by portfolios align with the Paris Agreement. for corn, soybeans and wheat, boosting extension, lift the bottom lines of other “There’s a lot of work going on here, and farmers’ fortunes and paving a path for a agribusinesses in the rural Midwest. It will while some clients are very sophisticated and range of other rural businesses, including also take at least another year to ramp up having these conversations all the time, it’s community banks, to prosper after years of crop production. obviously a new conversation to other parts sluggishness. As long as export demand remains strong of the economy,” she said. Corn, for example, has traded above $5.50 and supply is playing catch-up, prices In its recent report, Ceres interviewed per bushel this week — about 30% higher could hold strong at their newfound levels, about half a dozen bank executives or bank than the final week of October. gradually leading to investments in land, investors. One former banker told the The positive trend could also lessen credit tractors and other large-scale equipment nonprofit that in order for de-carbonization quality risks that had been looming over that helps drive local economies. Rural banks to happen within banks’ portfolios, “it has to lenders. finance those major purchases. Loan growth be a profit center rather than a cost center for “When prices rise like this — and it’s tends to follow. the bank.” really a significant increase between just last Over the last five years, robust harvests

For up to date and complete coverage go to AmericanBanker.com TUESDAY MARCH 2, 2021 AMERICANBANKER.COM PAGE 7 steadily inflated supplies, putting downward North Dakota, said beef prices are still assess nonfinancial risks and have a positive pressure on prices. Then former President under pressure — tied to the supply chain impact.” Trump’s administration raised tariffs on interruptions imposed by the pandemic Wells Fargo, which has $1.9 trillion of imports from China, fueling a trade war — and cattle ranchers remain vulnerable assets, said it created the job to meet a with the world’s second-largest economy early this year. Weather, he added, is always growing demand by corporate clients for and a crucial destination for U.S. crops. a wildcard for crop farmers; too little or too ESG-friendly financial products. China levied new tariffs on American farm much rain in the spring is a perennial worry. “The world of ESG and sustainability is products in response, curbing U.S. exports But overall, Kusler said, farm country is very much in focus across all of our corporate and pinching farm incomes. clearly on an upswing. and institutional relationships,” Rob Engel, The pandemic further complicated “Most people are really quite optimistic,” Wells Fargo’s head of banking, said in an matters, with travel restrictions and safety he said. “Compared to sentiment just last fall, interview. “You’re seeing it across all our measures interrupting the global food things are much more positive.” industries, sectors and product groups. It’s supply chain. Agriculture commodity prices very much now part of M&A, debt and equity dropped, forcing farmers to scale back capital markets, lending. … We’re seeing that investments in equipment and land. Rural COMMERCIAL BANKING continue to escalate.” economies suffered over the past year as a Piché has been with Wells Fargo for 20 years result, and bankers started to worry about and most recently led asset management rising charge-offs. Wells Fargo for corporate and investment banking. She But trade tensions have eased and previously led credit origination efforts for China is now in the midst of ramping up promotes the bank’s financial institution clients in pork production amid a recovery from the Eastern Europe, Africa, India and the Middle pandemic — and needs U.S. crops to feed East. hogs. One result: Soybean, corn and wheat veteran prices early this year have all traded at their highest levels since 2014, CME Group data executive to C-SUITE shows. These crops form the foundation of the U.S. food supply; they are used in processed foods and to feed livestock. new ESG post Citi’s Corbat The specter of credit quality challenges is fading along with the higher crop prices, and By Laura Alix has parting sentiment is rapidly improving, bankers say. February 26, 2021 “When grain prices are up, everybody’s Wells Fargo has elevated a longtime happy,” said Patrick Gerhart, president of the investment banker to a new role overseeing words: $36 million-asset Bank of Newman Grove in environmentally and socially responsible Nebraska. investments for its corporate clients. ‘Banking “Overall loan demand is OK, but when As managing director and head of ESG prices are up and cash flow is strong, farmers solutions, Geneviève Piché will lead the pay down loans, too, so growth is not the first San Francisco company’s efforts to ramp is quickly thing we see,” Gerhart said. “But credit quality up environmental, social and governance has held up, and now it’s looking good. Our products in its corporate and investment changing’ customers are doing well, and we’ll do well bank. Her work will span debt capital with them over time.” markets, equity capital markets, public By Bloomberg News A February survey of bank CEOs in 10 finance, lending, M&A advisory, cash February 26, 2021 agriculture-heavy states across the Midwest management products and liquidity. She will Citigroup’s Michael Corbat warned that conducted by economist Ernie Goss at be based in Charlotte, N.C., and will report to the world of banking is quickly changing in Creighton University in Omaha, Neb., found Ken Kitkowski, head of corporate finance. his final message as chief executive to the a majority of bankers expect strengthening “At the core of it, I think incorporating ESG bank’s hundreds of thousands of employees. farmland prices and increasing agricultural considerations into business strategies is Corbat, who will be succeeded by Jane equipment sales in 2021. value-creating for investors and companies,” Fraser on Monday, said customers are The survey produces a banker confidence Piché told American Banker. “You have increasingly looking for financial services index that measures outlooks for the next six companies that are embracing the idea that to be more personalized and delivered in a months. In February the index produced a business decisions have an impact and should faster and simpler way. reading of 64 — anything above 50 points to have an impact on a range of stakeholders. “As I pass the reins to Jane, I can confidently growth — its highest level since March 2011, Then you have the investor side with trillions say that this 208-year-old institution has its and up from January’s 60. of dollars of capital being deployed by the best days ahead,” Corbat said in a memo to Dave Kusler, president and CEO of the asset management community, and they’re staff. “I cannot wait to see how Citi helps $60 million-asset Bank of Hazelton in seeing that ESG is a really important tool to shape this new world.”

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Corbat, 60, reflected on the morning 38 “As CEO, I’ve been determined to keep Still, “we expect the second half of ’21 should years ago when he was headed to an interview our mission and purpose front and center,” be demonstrably better than both the first for the training program at , Corbat said in his parting memo. “As a global half of ’21 and the second half of 2020.” one of Citigroup’s predecessor firms. bank, we must never forget the tremendous In the fourth quarter, NII decreased 16% “I woke up to catch a flight to New York influence Citi can have on society.” from a year earlier to $10.3 billion, driven by City, only to discover that my car had been lower interest rates. stolen,” Corbat said in the memo, noting he eventually made his way to New York and COMPENSATION was offered a spot in the prestigious program. WEALTH MANAGEMENT “Not exactly an auspicious beginning to my career.” Bank of He spent decades climbing Citigroup’s Merrill Lynch ranks with stops as head of the franchise in America will Europe, the Middle East and Africa, and a ramps up stint overseeing the unit that housed assets marked for sale in the aftermath of the book $400M financial crisis. He was named CEO in 2012. wealth unit “I have loved every job I’ve had at Citi,” expense for Corbat said. “But serving as your CEO has as rich clients been the honor of a lifetime.” divisive bonus Facing scrutiny flock to Corbat’s departure comes as the bank is changes facing fresh scrutiny from regulators about its Florida underlying technology and internal controls, By Bloomberg News work that will continue on Fraser’s watch. February 26, 2021 By Bloomberg News She’s also taking over as the world Bank of America will book a $400 million February 26, 2021 continues to grapple with the deadly expense in the first quarter to account for a Bank of America’s wealthiest clients are coronavirus pandemic, hindering economic change in bonus policies that sparked anger flying south to Florida. It’s meeting them growth and sending unemployment soaring. among high earners. there. That’s meant the bank has had to set aside “In January, we made a change in one Merrill Lynch Wealth Management more in reserves to cover potentially souring element of a portion of our incentive comp President Andy Sieg said the unit is loans, pressuring profits. paid in 2020,” Chief Financial Officer Paul intensifying its focus on the Sunshine State. Still, it’s a far cry from the firm’s Donofrio said at a Credit Suisse Group virtual The firm has 20 teams that cater to ultra- performance during the financial crisis, conference Friday. The alteration will shift high-net-worth individuals there, and plans when Citigroup drew a larger bailout than into this quarter costs “that would have been to double that over the next few years, to any other U.S. bank and was forced to sell incurred anyway over the next four years, so serve investors with more than $10 million to almost $1 trillion of subprime assets and exit it’s just an acceleration in Q1.” invest. The move reflects a broader expansion: dozens of businesses. In January, Bank of America scrapped Merrill added more than 9,300 new clients in “Think about how far this bank has come a proposed bonus policy for high-earning Florida during the past four years, accounting over the last decade,” Susan Katzke, an traders and dealmakers after it caused for about 10% of net new household growth analyst at Credit Suisse Group, said Thursday consternation. The change would have nationwide. Bank of America Private Bank at a virtual conference. forced some long-tenured staff eligible for added 123 households last year, a 60% jump During his tenure as CEO, Corbat became retirement to forfeit a major portion of their from 2017. known for taking daring stances on social 2020 bonus. It was eventually waived for “The economy is broad-based and issues. The firm was the first major company some company veterans, but kept in place attracting a lot of talent to the state that is in to offer a frank assessment of the difference in for others, fueling frustration among senior its prime earning years,” Sieg said. “There is a wages it pays to men and women and remains employees. pandemic-driven element — just as there are one of the few companies to continue to do so Donofrio also said at the conference that increased opportunities and acceptance of today. the bank expects declining loan levels to be a remote work. We do think more individuals And when outcry over gun violence drag on net interest income, or revenue from will chose to live in Florida.” engulfed the U.S. in 2018, Corbat announced customer loan payments minus what the While the state has long been popular the bank would prohibit retailers that are company pays depositors, this quarter. among tourists and retirees, it’s recently seen customers of the firm from offering bump “It puts more pressure on the near- an influx of high earners from the financial stocks or selling firearms to people who term NII, but not as much on the full year, industry. Several prominent Wall Street haven’t passed a background check or are assuming we see some loan growth turn companies are considering moving some younger than 21. around” in the second half, Donofrio said. business there, or are relocating outright.

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And in these days of working from home, clearinghouse transactions, sanctions Florida’s low taxes, year-round warm weather BANKTHINK screening produces true matches at a rate and emerald golf links are already luring of 0.0005%. For domestic transactions that some bankers and money managers down use real-time payment or Zelle payment from New York. Streamline networks, the number is 0.0000%. “We’ve had a tremendous inflow in the Because sanctioned individuals most last year,” said Don Plaus, the head of Merrill bank rules often transact through shell companies Private Wealth Management, who has or nominees, any effective enforcement firsthand experience as a Miami transplant. regime therefore would require banks to The New York native was initially reluctant for spotting spend resources using advanced analytics to relocate to Florida when he was asked in to identify those companies or nominees; 2015, but said he has since been won over by sanctions and working closely with U.S. government its outdoor activities, restaurants and general agencies whose mission is to know where the quality of life. Plaus runs a group that serves bad guys are hiding. ultrawealthy clients, providing advice on a violators In other words, focus on detecting evasion. range of financial services from investment Thus, the Treasury Department and OFAC management, mortgages, art and yacht By Greg Baer have consistently instructed banks to operate lending to tax and estate planning. February 26, 2021 a risk-based program that focuses their While high-end client events and family As it inherits a sanction regime of vital resources on productive uses. meetings organized by wealth managers have interest to U.S. national security, the Biden But OFAC does not examine banks for been put on hold for now, Merrill’s virtual administration should revamp banks’ compliance. Rather, it uses dialogue and events featuring chefs, sommeliers and other sanctions requirements to make them more the threat of enforcement to promote guest speakers have proven surprisingly targeted and otherwise more effective. compliance. Of course, this is how laws in popular even at a time when professionals For decades, the U.S. sanctions regime this country are generally enforced. But large are feeling overburdened by conference calls. (applied against nations, groups or banks also have on-site examiners from the More than a thousand Florida clients individuals) has used banks as a fighting federal banking agencies who have stepped called in to a session on thematic investing, force. And thus far, they have been very in to assume command. Their orders are and a recent webinar on taxes under the poorly led. clear. Biden administration attracted 600 attendees The chain of command for administering First, the (unproductive) screening online, said Josh Moody, a regional managing sanctions is confused. Ultimate responsibility against the published OFAC list is deemed director in the private-wealth group and rests with the president and the Treasury essential. And not just the listed names, but market executive for Miami. In Tampa, a Department through its Office of Foreign also multiple variants. Meaning, not just team led by Michael Valdes brought in almost Assets Control, but battlefield command has all the wrong “Khameneis,” but also all the 30 new wealthy households last year even as been assumed by bank examiners. As a result, “Kameneis,” “Khomeneis” and “Khamenis” the pandemic raged. banks receive tactical orders that are at odds name variants. Merrill Lynch Wealth Management has with the overall mission or strategy. Second, banks are expected to establish about 1,300 financial advisers in Florida. Of As background, it is important to highlight policies that require screening of nearly every Bank of America’s 213,000 workforce, more a general misunderstanding about how transaction — both foreign and domestic, than 18,000 employees are based in the state, banks implement economic sanctions. large and small — regardless of the likelihood where has 500 branches, 52 Merrill offices Most believe that OFAC publishes a list of of it being a sanctioned one. So if someone and 13 private-bank locations. sanctioned individuals or companies, and sends a $20 Venmo payment to cover last The boom in Florida may be part of a that banks screen transactions against that night’s pizza, it’s highly unlikely to be a longer-term shift comparable to the growth list, and block transfers to anyone on the list. payment to an overseas Russian oligarch, but in Silicon Valley or the heyday of Michigan’s But it’s far more complicated than that, it is screened by Venmo just the same. auto industry, Sieg said. and less effective. In practice, the list of Third, a transaction that is routed through “There’s nothing more powerful in wealth sanctioned individuals or companies is different banks must be screened by management than demographics,” he said. useless to banks in enforcing sanctions. every one of those banks, despite that the “This is a long-cycle business.” Sanctioned individuals are clever enough originating bank almost certainly knows the to avoid transacting in their own names customer best. once designated. So, while Iran’s unelected Finally, any model designed to identify Supreme Leader Ayatollah Ali Khamenei is evasive behavior must run the gauntlet of the currently on the sanctions list, the unfortunate federal banking agencies’ 2011 model risk fact is that there are likely thousands of other management guidance, adopted primarily Ali Khameneis with bank accounts who are for financial functions like asset valuation neither on the list nor guilty in any way. and capital measurement, where precision is Thus, a Bank Policy Institute study vital and rapid change relatively unimportant. shows that for international automated Applied to sanctions, it is an innovation killer.

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What makes this situation all the enforcement authorities in connection with similar professional services providers. The remarkable is that Congress never envisioned this matter and intends to pursue all available group hopes to buy more banks after closing the banking agencies playing any role here. sources of recovery and other measures to the first acquisition. In contrast to the Bank Secrecy Act and mitigate the potential loss,” the filing said. “Minority banks play an important role anti-money-laundering framework, where SVB said that after a risk assessment review in the economic empowerment of minority Congress granted examination authority to of its global fund banking portfolio it believes communities and these financial institutions the Treasury Department and that authority the incident is an isolated occurrence have long been considered as innovators was delegated to the banking agencies, involving a single business relationship. in banking but in recent years they have Congress did not grant them any regulatory, Separately, SVB said it expects to record not always managed to keep up with examination interpretive or enforcement $230 million to $300 million in net gains on technological advances,” said Darnell Parker, authority over economic sanctions. investment securities and equity warrant Ingenious Financial’s founder and a former By law, they have no greater authority to assets for the first quarter. The gains would senior financial analyst at the Treasury enforce sanctions laws than securities, tax include the sale of shares of BigCommerce Department and the Federal Deposit or environmental protections laws. And yet, Holdings. Insurance Corp. they issue the orders. SVB, which recently announced it was “When larger financial institutions There is precedent for reform, however. buying Boston Private Financial Holdings, is absorbed some of the minority deposit An extraordinary bipartisan consensus was scheduled to report first-quarter results on institutions banks, they left a tremendous reached at the end of 2020 with respect to April 22. void for these banks, who previously served the need for AML reforms, yielding historic minority communities by providing small to legislation and significant regulatory medium-sized business loans,” he added. q changeas well. UNDERSERVED With sanctions, legislation is not necessary. POPULATIONS © 2021 Arizent and American Banker. The OFAC simply needs to issue a regulation All rights reserved. that dictates bank sanction-related programs be risk-based and innovative, and then insist Group looks that the regulation be followed — by banks, and by their regulators. to form bank

Greg Baer is the president and CEO of the Bank Policy Institute. to serve minority- CREDIT QUALITY SVB discloses owned potential businesses By Paul Davis February 26, 2021 fraud tied to A group in Northern Virginia is raising capital to buy a bank and offer products to the $70M loan minority community. Ingenious Financial in Arlington, Va., is By Paul Davis looking to raise $200 million to form Bank of February 26, 2021 Ingenious. The company plans to raise the SVB Financial Group in Santa Clara, Calif., capital by June 30 so it can buy an existing is investigating a potential case of fraud tied bank during the third quarter. to a large line of credit. The group said in a Wednesday press The $116 billion-asset company disclosed release that it is looking to buy a bank in a in a regulatory filing Friday that it recently major metropolitan area with $50 million to became aware of a potential issue with a $600 million of assets. The plan is to buy the $70 million lending relationship. The issue bank, take over its management and expand. is connected to a loan transaction funded Ingenious Financial would offer banking in early February as part of its global fund products to underserved retail and business banking portfolio. customers, which a specific focus on SVB “is working with the appropriate law physicians, dentists, veterinarians and

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