THURSDAY APRIL 1, 2021 VOL. 186 No. 62 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Where Goldman, Citi, 5 JPMorgan are putting fintech investment dollars Old school Large U.S. banks are directing their venture While larger banks have diversified their revenue streams over capital dollars to fintechs in capital the years, community banks still largely rely on loans to make markets, wealth management and “future- money proofing.” Page 5 See story on page 4 Two bankers banned 6 from industry in closely Net interest income, 70.9% watched trade secret case In an enforcement action that could have Net gains from loan sales, 8.9% reverberations across the sector, the Fed imposed tough penalties on a pair of Fiduciary acǎviǎes, 4.3% Wyoming bankers who took confidential Service charges, 3.0% information to their new employer. Page 7 Investment banking, 0.6% Debit’s on a roll. Are small 7 merchants getting rocked? Insurance income, 0.5% The Justice Department’s probe of Visa Trading account gains, 0.1% highlights whether merchants are properly equipped to adapt to the cost of debit spending Other noninterest income, 11.7% as more commerce goes digital. Page 8

Visa, Mastercard face Source: FDIC (2020 data for banks with below $10B of assets) 8 new pushback in $5.5 billion retailer suit Visa and Mastercard are facing fresh opposition from U.S. retailers in a long- dailybriefing Fee income lagging, running legal fight over the fees merchants 3 Louisiana bank makes pay each time consumers swipe their credit bet on wealth management or debit card at checkout. Page 9 Will Senate vote on CFPB chief Business First Bancshares is counting on its 1 come down to tiebreaker? acquisition of Smith Shellnut Wilson to help Walgreens eyes Wall Street’s The full Senate could deadlock on Rohit it offer more advisory services to commercial 9 turf with new bank Chopra’s nomination as the Banking clients. (See chart above.) Page 4 account offering Committee did. If that happens, Vice The drugstore chain will debut a new bank President Kamala Harris is expected to cast BofA expands racial account for customers that will offer rewards the decisive vote in his favor. Page 2 4 equity pledge with tied to its loyalty program. Page 9 focus on Asian Americans How racial justice Bank of America said Tuesday that it would Wells Fargo unwinds 2 push sparked new up its initial commitment from $1 billion to 10 Archegos exposure CRA law in Illinois $1.25 billion and would increase support without posting losses The banking and credit union industries in Asian American communities, where Shares of the company advanced after it opposed the Illinois Community violence and incidents of harassment issued a statement about the bank’s prime- Reinvestment Act, but they were largely have risen sharply during the COVID-19 brokerage relationship with the family shut out of a process that moved quickly pandemic. Page 5 office.Page 9 amid a nationwide reckoning on racial inequality. Page 3 THURSDAY APRIL 1, 2021 AMERICANBANKER.COM PAGE 2

an FTC commissioner. Toomey said Chopra was “one of the CFPB The tight path he faces to leading the right-hand men” for the CFPB’s first director, CFPB has more to do with the agency’s Richard Cordray, who led the agency from partisan history than with Chopra himself. 2012 to 2017. The GOP senator argued that Will Senate As the brainchild of Sen. Elizabeth Warren, Chopra would “restore this regulator to a very D-Mass., the CFPB has been lauded by harsh anti-business, anti-banking entity.” vote on CFPB Democrats for the billions of dollars it But Toomey acknowledged that has returned to harmed consumers. But Republicans would not be able to muster Republicans have been opposed to the enough opposition to defeat the nomination. chief come agency since its conception, arguing it has “Even if no Republicans supported his been unaccountable and overly aggressive confirmation — and there might well be down to in its enforcement actions against financial some support, it won’t be many — he’ll firms. probably be confirmed,” he said at the ABA “We expected it would be close,” said Ed conference. tiebreaker? Mierzwinski, senior director of the federal Some observers say it is possible that consumer program at the U.S. Public Interest Republicans like Sens. Susan Collins of By Neil Haggerty Research Group. “The Republicans have Maine, Lisa Murkowski of Alaska and Mitt March 30, 2021 decided that they’re going to stand with Romney of Utah, could still support Chopra’s WASHINGTON — The tie vote in the Wall Street on this issue. And, quite frankly, nomination once the full Senate takes it up. Senate Banking Committee earlier this they’re going to stand with payday lenders “It is definitely possible, whether that’s month on Rohit Chopra’s nomination as and Wall Street on this issue.” Murkowski or Collins or Romney, it’s Consumer Financial Protection Bureau A financial services lobbyist added possible,” the financial services lobbyist director made clear the GOP will oppose that most Republicans likely won’t vote said. “Those folks have voted for probably progressive picks to lead the regulatory to confirm any person nominated by a more Biden nominees than any others in the agencies. But observers say that opposition Democratic president to lead the CFPB. Republican caucus. If they choose one or two may just be a speed bump on the way to “Even though he’s a progressive, he to vote ‘no’ on, just to kind of maintain their Chopra’s leading the bureau. demonstrated he’s more than capable and Republican street cred a little bit, maybe this The committee was deadlocked after more than qualified,” the financial services is an easy one to vote ‘no’ on because it’s the all of the panel’s 12 Democrats voted to lobbyist said. “So the reality is, [Republicans] CFPB. But I do think it’s a real possibility that support the Chopra and all 12 Republicans are just going to vote ‘no’ on anybody. It Chopra could get one or two Republican voted against him. The parties have equal could have been Gandhi and they would [votes] on the floor.” representation on Senate committees. But have voted ‘no.’ “ Ed Mills, a policy analyst with Raymond since Vice President Kamala Harris can Ian Katz, a director at Capital Alpha James, said Collins has previously focused break any tie in the Senate, Senate Majority Partners, agreed that “a lot of Republicans on nominees’ “qualifications” when Leader Chuck Schumer, D-N.Y., can offer a either don’t think the CFPB is necessary or determining her support or opposition. motion to release Chopra’s nomination from are skeptical of what it does.” “Her history and her rationale for the Banking Committee, advancing him to a “And certainly they don’t like the way the supporting individuals nominated by both floor vote. Democrats approach it,” Katz said. Democrats and Republicans has been that While the additional procedural hurdle could delay Chopra’s nomination, industry observers say the Federal Trade Commission Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 member and former CFPB student loan Phone 212-803-8200 AmericanBanker.com ombudsman’s bid to head the consumer watchdog is likely to prevail — though Harris Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 may need to cast the decisive vote. Managing Editor Dean Anason 770.621.9935 “He’s very likely to be confirmed since Reporters/Producers confirmation now can occur on a simple Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 majority, with the vice president breaking Washington Bureau Chief Joe Adler 571.403.3832 a tie,” Sen. Pat Toomey of Pennsylvania, Executive Editor, Technology Miriam Cross 571.403.3834 the top Republican on the Senate Banking Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 Committee, said at a recent virtual BankThink Editor Rachel Witkowski 571.403.3857 conference hosted by the American Bankers John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 Association. Hannah Lang 571.403.3855 While Chopra is viewed as a progressive, his Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 nomination isn’t particularly controversial Digital Managing Editor given his prior experience at the CFPB and Christopher Wood 212.803.8437 Kevin Wack 626.486.2341 his previous Senate confirmation to serve as

For up to date and complete coverage go to AmericanBanker.com THURSDAY APRIL 1, 2021 AMERICANBANKER.COM PAGE 3 the advice and consent of the Senate is year, reducing the clout of the financial about, is this person qualified?” Mills said. UNDERSERVED services industry in certain policy areas. “And when she has been a ‘no’ vote, she POPULATIONS “Our nation’s systems were designed to believes it comes down to the qualifications. keep Black people from owning businesses, We would have to see her outline a rationale buying homes and fostering economically as to why Chopra is not qualified for her to How racial prosperous communities,” Senate Majority justify her ‘no’ vote.” Leader Kimberly Lightford, a Democrat who Still, Democrats pushing Chopra’s justice push is the first Black woman to serve in that role, nomination don’t want to lose any members said last week in a press release. “To achieve of their party when the full Senate votes. If all real equity in Illinois, we must dismantle Republicans oppose Chopra’s nomination, sparked new these systems and rebuild them in a way Chopra needs the support of the full that gives African Americans the chance to Democratic caucus and then a tie-breaking CRA law in succeed.” vote from Harris. Supporters of the Illinois Community Sen. Joe Manchin, D-W.Va., has not yet Reinvestment Act trace its origins to last signaled whether he would support Chopra’s Illinois June, when the Chicago public radio nomination to lead the CFPB, and his vote station WBEZ and a local nonprofit news has been considered crucial in advancing the By Kevin Wack organization released striking findings Biden’s administration’s most progressive March 30, 2021 about racial disparities in the city’s home nominees. His vote against Neera Tanden A new Illinois law that is designed to purchase mortgage market. to serve as the Office of Management and push state-regulated financial institutions That story — published just eight days after Budget director ultimately killed her chances to invest more in underserved communities the death of George Floyd in Minneapolis of confirmation. grew out of the racial justice movement that — showed that lenders invested more Chopra “has probably not a single vote to swept the nation last year. money in one majority-white neighborhood spare, you know, for on the Democratic side,” It happened before lenders, which between 2012 and 2018 than they did in all Katz said. “If you’re from the Democratic opposed the measure, knew what hit them. of Chicago’s majority-Black neighborhoods side, they need to make sure that there are Gov. J.B. Pritzker, a Democrat, signed the combined. no defections, not Joe Manchin, not anybody Illinois Community Reinvestment Act on “I think that that really spurred an else. And then you need everybody to show March 23, less than three months after it was awareness that something more needs to be up whenever they call the vote, and you need introduced, as part of a wide-ranging set of happening,” said Sharon Legenza, executive to make sure that nobody is sick. And then reforms backed by the Illinois Legislative director of the advocacy group Housing everybody can show up.” Black Caucus. Action Illinois. But the “yes” vote from Sen. Kyrsten While the law’s supporters celebrated The WBEZ report focused on mortgage Sinema, D-Ariz., in the Senate Banking their swift victory, opponents in the financial lending by some of the nation’s largest Committee signals to some analysts that services industry expressed frustration with banks. But because those banks typically moderate Democrats are on board with a speedy legislative process that largely shut have national charters from the Office of Chopra’s nomination. them out. the Comptroller of the Currency, the ability “Everyone focuses on Manchin, but she is “It’s certainly troubling and not what of state and local governments to influence as important,” Mills said, referring to Sinema. we’re used to,” said Ben Jackson, executive their conduct is sharply limited. “Every vote is important. But if there was a vice president of the Illinois Bankers So Illinois lawmakers turned their vote that could have been against, it was her Association. “At the same time, we have this attention to state-chartered financial because she is not shy with her connections law. We have to move forward with it the institutions, including nonbanks that have to corporate America and the banking best way we can.” made more than half of all U.S. mortgages in community and industry.” The law creates the state’s own version of recent years. Mills added that Manchin may not the federal Community Reinvestment Act, Under the law signed last week, state- prioritize the CFPB when he is sounding in order to assess the performance of state- chartered lenders will have an obligation to the alarm on the Biden administration’s chartered banks, state-chartered credit meet the needs of the Illinois communities in nominees. unions and nonbank mortgage lenders which they operate. The Illinois Department “If there were more banks headquartered in meeting the needs of economically of Financial and Professional Regulation in West Virginia that would have been disadvantaged communities. While banks, will be responsible for writing rules that impacted by this, I’d be concerned,” regardless of where they are chartered, operationalize the measure, as well as for Mills said. “If Chopra was regulating the are already covered by the nationwide conducting examinations. coal industry, it wouldn’t happen. Is this community reinvestment law, credit unions The state regulatory agency supported Manchin’s first choice? Maybe, maybe not. and nonbank lenders are not. the legislation and looks forward to But I don’t see this as where he necessarily The state law’s passage is an example of implementing it, said Deborah Hagan, its establishes his opposition.” how combating racial inequality has become secretary. “The bill is groundbreaking for a key priority for Democrats over the last Illinois,” she said in an emailed statement.

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The Illinois Credit Union League is among made up 14% of its revenue last year, or roughly the groups that opposed the bill. The group’s M&A half the 29% average for banks with less than chief operating officer, Patrick Basler, said $10 billion of assets, according to the FDIC. that credit unions whose members are While Melville declined to say how much linked by a common occupation are not Fee income Smith Shellnut Wilson will change Business allowed to lend outside of those ranks, First’s composition of fee income, he said it which makes the specific requirements of lagging, will help the company make up some ground the Community Reinvestment Act a poor fit. on peer banks. Assets under management Basler also argued that the mission of will jump from $235 million to more than $3.7 credit unions is to provide products and Louisiana billion after the deal closes. services to people of modest means. “Credit “We expect this to be immediately accretive,” unions are already doing what CRA is bank makes Melville said. “We feel like in the second quarter asking, which is serving the underserved it will add incrementally and hopefully just communities,” he said. grow after that.” Other observers took issue with that bet on wealth Business First, which recently raised nearly assessment. $53 million by issuing subordinated debt, has Prior to the Illinois measure, management made other moves to diversify revenue. Massachusetts was the only state with The company last fall hired Jesse Jackson, a a law that subjected nonbank mortgage By John Reosti banker at Texas Capital Bancshares in Dallas, lenders and state-chartered credit unions to March 30, 2021 to lead a new financial institutions group community reinvestment standards. Under Business First Bancshares in Baton Rouge, inside its bank. While at Texas Capital, Jackson the Bay State’s law, almost no credit unions La., is poised to play catch-up when it comes to helped build a national correspondent banking currently have the top score, according to fee revenue. business that serves more than 400 community Tom Callahan, executive director of the The $4.2 billion-asset company agreed last banks. Massachusetts Affordable Housing Alliance. week to buy Smith Shellnut Wilson in Ridgeland, Melville said he pictures the financial “Credit unions have a great brand, but I Miss., a deal that should close in a matter institutions group, which was created to think the Massachusetts experience shows of days. The deal will significantly increase facilitate loan participations, working with that sometimes that brand is overrated,” he Business First’s assets under management and Smith Shellnut Wilson to create a stronger said. provide a range of new services to offer to the value proposition for potential correspondent Bankers have their own complaints about company’s commercial clients. bank clients. the new Illinois law. They contend that it will Jude Melville, Business First’s president “A little more than half of SSW’s business is create duplicative regulation, since state- and CEO, said he is keen to keep building out with other community banks” in areas such as chartered banks that already must comply the business. For him, wealth management is liquidity management and portfolio modeling, with the federal Community Reinvestment advice-driven, thus difficult to commoditize, Melville said. “Being able to leverage those Act will be subject to two examinations. and it adds a new dynamic to Business First’s [new businesses] together — we see that as a “As Illinois piles on additional banking revenue model. big opportunity.” regulations,” Jackson said, “it tends to lead Community banks “need to think about Smith Shellnut Wilson can also advise banks to seek to charter elsewhere, whether ways to diversify” away from an historical commercial banking clients who’ve sold their in another state or under the OCC.” dependency on loans, Melville said. “If you can businesses. The law’s supporters said that they believe serve your business clients at various stages of “When an entrepreneur sells a company and the department can conduct examinations their life cycle, then you’re going to be a better is not yet embarked on another opportunity, of banks in a way that does not impose partner. This just makes sense.” what do you do with the liquid assets they might additional burdens. Low interest rates and tepid loan demand have generated,” Melville said. “We didn’t have When state regulators write the have suppressed earnings at many banks with an answer. Now, we do.” implementing regulations, state-chartered less than $10 billion of assets. Net income “If you can serve your business clients at financial institutions should have a voice, at those banks fell by 5% in 2020 from a year various stages of their life cycle, then you’re said Horacio Mendez, the president and earlier, including a 1.2% decline in net interest going to be a better partner,” Melville added. CEO of the Woodstock Institute, which income, according to the Federal Deposit Wealth management has become a popular championed the community reinvestment Insurance Corp. area of expansion for banks seeking more fee law. “We feel that it’s really important for all Business First avoided that fate largely income. of us to be at the table,” he said. through its May 2020 purchase of Pedestal The $116 billion-asset SVB Financial Group Bancshares in Houma, La. Net interest income in Santa Clara, Calif., agreed in January to rose by 58% in from a year earlier, while net buy the $9.7 billion-asset Boston Private income increased by 35% to $36 million. Financial Holdings for $900 million. Earlier Still, Melville is aware that his company this month, WSFS Financial in Wilmington, needs to close a gap with similar-sized banks Del., announced a $976 million deal for the in fees as a percentage of revenue. Fee income $5.4 billion-asset Bryn Mawr Bank that would

For up to date and complete coverage go to AmericanBanker.com THURSDAY APRIL 1, 2021 AMERICANBANKER.COM PAGE 5 nearly double its assets under management to racial equity first made last summer, amid $43 billion. nationwide protests over inequality. FINTECH The $19 billion-asset City National Bank The company is upping its total of Florida in Miami has created a new private commitment to $1.25 billion over five years banking brand, City National Private, to offer and will increase support in Asian American Where more services to business owners and high- communities, where violence and incidents net-worth families and individuals. The bank of harassment have risen sharply during the Goldman, Citi, recently hired Steven Hayworth, a former COVID-19 pandemic. CEO at Gibraltar Private Bank & Trust, to lead In the immediate term, BofA is its private banking and wealth management committing $1 million to nonprofits and JPMorgan businesses. civil rights groups offering services ranging Melville said he sees Smith Shellnut Wilson from bystander intervention training to in- are putting as a relatively low-risk acquisition. The firm language legal support and social services has advised Business First on its investment assistance. portfolio since the bank was formed 15 years “Across the public and private sectors, it is fintech ago. clear that we must do more — to take action, “We have a deep, long standing relationship, help others convene, and serve as a catalyst investment which obviously makes you feel good about for a broad-based, collective response to stepping off into something that’s a pretty big the critical issues affecting our nation,” investment,” Melville said. Chairman and CEO Brian Moynihan said in dollars Smith Shellnut Wilson, which was founded a press release. in 1995, had been undergoing a management Bank of America, PNC Financial Services By Penny Crosman shift, with co-founder and CEO Frank Smith Group and other banks made big pledges to March 29, 2021 handing off some day-to-day responsibilities advance racial and class equity last summer Big banks continue to invest heavily in to his son, Frank Smith III, and Will Johnson, amid nationwide unrest sparked by the fintech startups that can help them stay another top executive. deaths of George Floyd, Breonna Taylor and competitive, reach new markets and improve “Since there’s a change, it made sense to talk Ahmaud Arbery. efficiency, but the specific sectors they put about how we can maximize opportunities to Hate crimes against Asian Americans money into are changing. Capital markets both parties,” Melville said. have spiked during the past year, fueled and wealth management fintechs are “From the cultural perspective, this type by xenophobic public discourse blaming attracting bank investment, while blockchain of business is a perfect fit for us because we them for the coronavirus outbreak, which companies appear to have gone out of favor, consider ourselves partners and advisers to our originated in China. One group that tracks at least for now. corporate clients,” Melville added. “If you were violence against Asian Americans said it had A recent CB Insights report found that to ask me what’s the line of business that should received over 2,800 reports of hate crimes last year, U.S. banks made more than 65 most naturally fit our bank, this is what I’d come last year, but some civil rights groups believe equity investments into fintech companies up with.” these attacks are underreported, making the — about the same number as in 2018 and true total much higher. 2019. Goldman Sachs, JPMorgan Chase and Initially, Bank of America pledged $1 Citi are the top bank investors in fintech. ESG billion over four years. It said Tuesday that it Citi participated in 22 fintech deals in 2020 has so far made $350 million in investments and Goldman backed 18, according to CB related to that initial plan. Examples Insights. (The firm tracks publicly announced BofA expands included $188 million in 61 private equity deals; it’s possible the actual numbers are funds focused on minority and women higher.) A look at where the most active racial equity entrepreneurs and another $10 million bank investors in fintech indicates where the invested into Native American Bank, the banks themselves are looking to innovate and only American Indian-owned community the sectors of the fintech market that they pledge with development bank in the U.S. perceive as having the healthiest potential of The Charlotte, N.C.-company also said return. focus on Asian that it had added Connie Chung Joe, the CEO of Asian Americans Advancing Justice Future-proofing the bank in Los Angeles, to its National Community As always, the big banks look for fintechs Americans Advisory Council. The council advises the that can help them innovate and stay relevant company on its business policies, practices in the face of growing competition from By Laura Alix and products. fintech and Big Tech competitors. March 30, 2021 “The top U.S. banks are still looking to Bank of America said Tuesday that it future-proof their businesses,” noted Oliver will expand $1 billion commitment to Yu, intelligence analyst at CB Insights.

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Such future-proofing is the reason Citi said. “We were fascinated by how quickly solve. That’s why those tech solutions are Ventures exists, agreed Arvind Purushotham, Greenwood’s waitlist grew and continues to seeing the most interest.” global head of venture investing at Citi grow.” As of last week it was at 550,000 people; At Goldman Sachs, the strategy team led Ventures, the venture capital and innovation the startup launched in October. by Hutchinson invests mainly in fintechs that arm of New York-based Citigroup, which During the due diligence period for the provide critical market infrastructure “where has $2.2 trillion of assets. The unit, which Greenwood investment, 50 Truist bankers often we’re investing alongside other market was formed in 2010, recently made its 100th spent time with Greenwood’s staff of 17, participants in something that we think is investment; it has about 70 companies in its sharing best practices and lessons learned important for the development of a particular portfolio. Its mission is to drive innovation about technology, compliance and auditing market, as well as growth companies that by exploring, incubating and investing in with the startup’s leaders. provide products and technology that are fintechs, he said. One of JPMorgan Chase’s three major areas important to our business,” he said. “A big part of what we do is bring that of focus for fintech investment, according to In December 2018, Goldman, JPMorgan outside perspective,” he said. “In the early Ana Capella, managing director and head Chase, Citigroup and Credit Suisse invested stages of fintech, a lot of these companies of strategic investments, is better serving $17.5 million in Israeli startup AccessFintech. were saying, banks do things one way, they’re customers and clients globally. (The other At the time, the startup had developed bad. We’re going to be the good guys. We’re two are protecting the bank, e.g. cybersecurity technology to help resolve exceptions doing it on our own and we don’t need banks software, and improving efficiency.) and errors in trade processing, such as to succeed. That’s evolved over time to much The New York bank is among those that discrepancies on the financial terms of a more of a collaborative relationship.” made an investment in Greenlight, a fintech trade between counterparties. Late last year, Truist Ventures was set up last September whose app lets children maintain bank JPMorgan Chase began using AccessFintech’s to support innovation across Charlotte-based accounts while their parents monitor their technology to provide real-time payment Truist Financial Corporation, according to spending, in 2019. Wells Fargo also joined the statuses for dividend, income and cash Vanessa Vreeland, head of Truist Ventures. $54 million Series B funding round. JPMorgan wire movements the bank does for buy- The bank, created in 2019 through the merger Chase launched a Greenlight-based app and side clients. The bank also uses the fintech’s of BB&T and SunTrust Banks, has $509 billion account for kids in October. technology to provide clients with real-time of assets. Last April, the bank, which has $3.4 trillion trade status updates. “Truist came about because SunTrust and of assets, led a $4.3 million funding round Last May, JPMorgan Chase, BNY Mellon, BB&T acknowledged they needed to invest in for Trovata, a U.S. startup that provides Citi, HSBC and State Street were among more technology in a lot of ways,” Vreeland automated cash reporting and forecasting to the investors in the $20.5 million round for said. “Ventures is at the tip of that spear, help corporate treasury departments better Proxymity, the fintech that originally was helping to bring outside innovation in.” manage and automate their operations. the brainchild of two Citi employees and Her group looks for innovative products Russ Hutchinson, chief strategy officer at was incubated within Citi’s D10X initiative. and services it can bring to clients and New York-based Goldman Sachs, which has The London-based startup has an investor employees, she said. $1.1 billion of assets, balks at the term “future communications platform that includes “We’re also looking for opportunities proofing.” an electronic proxy voting system, which is to learn,” Vreeland said. “Who is doing “I like to think about it in terms of making helpful for remote working arrangements, something really unique that we can learn our businesses better, serving our clients and a shareholder disclosure platform. from and where can we add our expertise to better, reducing latency and cost in the In June, JPMorgan Chase, Goldman Sachs, the conversation to add value to the fintechs financial system,” he said. The three “pillars” Barclays and Morgan Stanley participated that we’re working with?” under which Goldman makes all fintech in a $25 million Series B for Capital Markets A recent case in point is Greenwood investments are: strengthening its existing Gateway, a fintech that says it is “modernizing Financial, a challenger bank targeting Black businesses, adding new products and the equity capital markets” with a platform and Hispanic people, for which Truist services and operating more efficiently. that connects investors and underwriters Ventures led a $40 million Series A last and provides tools for data, analytics and week. The ability to attract more customers Capital markets workflow. of color would help any bank become more Citi Ventures backed 13 startups in capital In September, Capitolis received funding competitive as the U.S. population becomes markets from 2018 to 2020, according to from Citi, JPMorgan Chase and State Street. more diverse. CB Insights. JPMorgan Chase backed 12 The company’s software is designed to Truist bankers have been learning from companies in the sector during that time. help financial institutions free up capital Greenwood’s leaders, Vreeland said. These are startups offering technology and remove barriers that would otherwise “With Ryan [Glover, Greenwood’s CEO and solutions for all aspects of capital markets, restrict trading. The software helps banks former founder of Bounce TV, a broadcast from voice trading to instant messaging to eliminate unnecessary positions and find network created to target African Americans] trade settlement and post-trade processing. the most suitable party to hold the remaining being the media mogul that he is, we’re “The core problem and challenge in positions. excited to learn about how to connect with capital markets is coordinating across audiences in a different way, because we multiple market participants and remaining Wealth management don’t have a media background,” Vreeland compliant,” said Yu. “It’s a hard problem to In the past 10 years, big banks have made

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33 investments in fintechs focused on wealth send money internationally,” Vreeland said. efficient, faster and cheaper, with less human management, making this their second- “And they use cryptocurrency as one of their interaction. It’s invested in technology biggest category of fintech investment. Wealth rails, which is pretty exciting.” platforms that help regulatory compliance. fintechs provide self-service technology — Truist is looking to bring innovation to its It helped form Symphony’s open source think robo-advisers — software investment payments division, to serve consumer and messaging technology. Symphony is now advisers can use to better serve their clients, business clients in all parts of the bank, she valued at more than $1.4 billion. and tech for custody and back-office services. said. The bank is currently working towards a “The reason why there’s this focus on pilot with Veem. wealth management is because of how Payments is one of three sectors in which CRIME AND MISCONDUCT competitive the space has gotten,” Yu said. Citi Ventures invests. (The other two are “In 2020, we saw a lot of consolidation in the “next-generation financial services” and wealth management space, especially with property technology.) Two bankers the advent of zero-commission trading and Citi Ventures invested in Honey Science zero-fee trading, that definitely compresses Corporation, the makers of an e-commerce banned from the margins banks are able to make. So deal-finding browser add-on and app, about they’re trying to figure out ways to optimize a year and a half ago. In November 2019, that system and get more customers on PayPal acquired the company for $4 billion. industry board.” CB Insights research found investment in In May 2019, Goldman Sachs bought blockchain technology is way down among in closely wealth management firm United Capital the big banks. for $750 million. It bought Folio Investing, This may be a hiatus. a digital custody provider to registered “As the technology matures, I think the use watched trade investment advisers, in May 2020 for an cases will also get figured out,” Purushotham undisclosed sum. said. “If I were to look out for the next year or secret case The bank chose Folio for its digital-first, two, there probably will be a few use cases API-driven approach to custody, Hutchinson where using blockchain technology turns out By Kevin Wack said. to be the best choice and then they will get March 30, 2021 “We’ve brought the capability into our implemented.” Two Wyoming bankers have been banned organization and we’re combining it with Citi has a few investments in trade finance from the industry in a trade secret case that the Goldman Sachs machinery to roll it companies that use distributed ledger could have implications for others who defect out across our client base more broadly,” technology. from one bank to another. Hutchinson said. “We’re quite bullish on them because The Federal Reserve Board last week In February 2021, Goldman launched that area of trade finance could be one of barred Mark A. Kiolbasa and Frank E. Smith Marcus Invest, a robo-adviser to compete those use cases that ends up being a great from being involved in the affairs of any with startups like Betterment and Wealthfront fit for blockchain and distributed ledger insured depository institution. The two men as well as other banks and brokerage firms technologies,” Purushotham said. are former employees of Central Bank and offering robos Citi has been watching the rise of Trust in Lander, Wyo., who later went to work cryptocurrencies and digital assets, he said. for Farmers State Bank in Pine Bluff, Wyo. Payments “We also have clients coming to us, asking The Fed’s orders, which were announced Payments fintechs of all sizes had a for services that are related to their crypto Tuesday, delivered a harsher penalty than phenomenal 2020, as the pandemic pushed assets,” Purushotham said. “So we have been has traditionally happened in cases where consumers and businesses to digital and in wait, and watch mode. Currently, Citi bankers take confidential information from mobile payments. U.S. banks invested more Ventures does not have any investments in their former employer, according to lawyers heavily in payments startups last year than the crypto space.” who specialize in these cases. they did any of the previous nine years, Typically, bank executives have faced civil according to CB Insights’ research. Improving efficiency penalties — but not the end of their banking Truist Ventures, which launched last fall, At Goldman Sachs, “we are constantly careers — for violating state laws that govern made its first investment in a company called looking for places where we can use the misappropriation of trade secrets. Veem, a service that helps small businesses automation and data science to basically The Fed’s tough stance in the Wyoming make local and cross-border payments. (The make our processes more efficient, run case could deter bank employees from taking VC unit also inherited a portfolio of fintech more smoothly, faster, with less human sensitive information from their old employer investments from its heritage banks, Suntrust human interaction and with stringent risk when they move to a new job. It also shows and BB&T, including Finxact, Enigma, management,” Hutchinson said. the potentially severe downside for banks Apiture, Greenlight and Payrailz.) To that end, Goldman has invested in that hire employees from a competitor. “What I loved about what Marwan [Forzley, tech companies that provide machine In 2018, Central Bank and Trust won Veem’s co-founder and CEO] was doing was learning and natural language processing judgments totaling more than $2 million making it super easy for small businesses to to make processes more accurate, more against Kiolbasa and Smith after alleging that

For up to date and complete coverage go to AmericanBanker.com THURSDAY APRIL 1, 2021 AMERICANBANKER.COM PAGE 8 they misappropriated trade secrets. Later that networks when it is advantageous to them, 1,500 independent supermarket operators. year, the Fed sought to ban the two bankers but many smaller merchants don’t have the About a dozen independent PIN-debit from the industry, initiating a legal process tech staff or the knowledge of payments to networks are available to all merchants, before Administrative Law Judge Christopher even understand their options,” said Sarah while the online or signature option tends McNeil. Grotta, director of debit and alternative to be via Visa or Mastercard debit rails. The Last week, McNeil issued a 54-page ruling products advisory service at Mercator signature debit transaction fee is roughly that sided with the Fed. While the two bankers Advisory Group. 0.26%, more than double the standard PIN were still employed by Central in 2013, they The Justice Department is looking into debit pricing of 0.11%, according to a recent created a business plan about their interest in Visa’s debit card practices. While Visa could report from the equity analyst firm KBW, acquiring Farmers, according to the judge’s technically be in compliance with the Durbin which cited the latest Federal Reserve data. ruling. They also poached Central customers amendment, merchants hope regulatory Visa offered no comment on the situation and eventually purchased equity interests in pressure could motivate Visa — which has after confirming in a March 19 SEC filing Farmers. the lion’s share of the debit card market — to that the Justice Department has opened an In addition, after one of the bankers had revise its practices in merchants’ favor. investigation into its U.S. debit practices. left for Farmers but the other still worked Visa’s global debit volume increased 21% Specific remedies for merchants’ for Central, they strategized about business in the three months ended Dec. 31, 2020, complaints about debit routing aren’t clear. opportunities that would benefit themselves over the same period a year earlier, while The Fed could mandate more debit- or the bank where they both would eventually credit card spending volume declined 3%, routing choices, but that would likely only land, the judge found. Visa CEO Vasant Prabhu told analysts earlier create additional complexity and confusion, this year. said Eric Grover, a principal with Intrepid The timing isn’t great for Visa to defend Ventures LLC. DEBIT CARDS itself against fresh antitrust allegations, just “The Fed earlier considered but rejected four months after the Justice Department mandating that all debit cards be enabled on declared Visa a “monopolist” in online debit at least two unaffiliated signature, or PINless Debit’s on a when it sued the card network, ultimately debit networks; and two unaffiliated PIN forcing Visa to abandon its proposed $5.3 debit networks, but I doubt we’re going to go roll. Are small billion acquisition of the data aggregator there,” Grover said. Plaid. Any payment network, including Visa, “Visa is back on its heels after the has various levers to sway issuers to prefer merchants debacle that occurred in their attempt to their network, which in effect make it acquire Plaid, in which Visa implicated harder for independent national PIN debit getting itself in documents found by the DoJ networks like Shazam, NYCE, Pulse and showing Visa was at least considering some Star to compete for signature and PINless anticompetitive action,” Grotta said. transactions, Grover noted. rocked? With smaller merchants struggling to “If the Fed takes a view of these pricing recover from the pandemic and online debit strategies as materially inhibiting merchants By Kate Fitzgerald transaction volume persisting well above from exercising debit-routing choice, it March 30, 2021 pre-pandemic levels, the Justice Department could force Visa to rectify its pricing,” Grover The dramatic shift to credit and debit could pressure Visa to open a path to help said. card spending that occurred last year was a small businesses lower their processing “In some cases, some large regional debit boon for cards and mobile wallets, but it left costs, Grotta said. networks offer a PINless debit option, but it’s merchants paying more to handle payments It’s not just smaller merchants not necessarily cheaper [than Visa’s existing that had previously been made with cash. complaining about Visa misusing its market online debit rail],” KBW’s Sanjay Sakhrani It was especially a double-edged sword power to drive more online debit volume to wrote. in Visa’s case; the card brand benefited from its network. Larger merchants with deeper Mastercard has stayed out of the fray so this shift, but also lost out on a substantial technical resources have other complaints far, but that could change if the government amount of travel spending once consumers about how Visa influences debit card sets new debit card pricing rules around and businesses entered lockdown. routing for both online signature (PINless) network routing and pricing, Grotta said. Debit fees were already under pressure debit versus lower-cost debit transactions “Visa has much, much greater debit from the Durbin amendment to 2010’s requiring a PIN. market share than Mastercard, but if Dodd-Frank law, which capped swipe “Visa is pressuring larger card issuers to changes are required in the payments fees and instituted a requirement to allow not enable PINless debit through various industry around how debit transactions are merchants to use more than one network routing volume agreements and other routed, it’s highly likely Mastercard will need to route debit payments. Now the issue is incentive contracts,” said Robert Yeakel, to implement the very same changes,” Grotta whether that law has kept up with the times. director of government relations for the said. “The big merchants certainly are using National Grocers Association, a Washington- This article originally appeared in so-called smart routing to use PIN-debit based nonprofit representing more than PaymentsSource.

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particularly concerned that the current class The Walgreens chain, which includes LAWSUITS would not represent our interests.” Duane Reade drugstores in New York City, A representatives for Visa did not have isn’t the only retailer looking to expand in immediate comment when reached by email financial services. Walmart Inc. also has said Visa, while a Mastercard spokesman declined to it’s hoping to offer customers access to lower- comment. The two networks set the fees that cost financial services, and announced it Mastercard merchants are charged each time a consumer would form a separate financial-technology swipes their card at checkout, though most of company as part of those efforts. the fee is passed on to the bank that issues the “We look forward to exploring and face new card. introducing even more customer-focused health and well-being payment initiatives in pushback in the near future, while creating new revenue CONSUMER BANKING streams,” Walgreens President John Standley $5.5 billion Walgreens said in Tuesday’s press release. retailer suit eyes Wall RISK MANAGEMENT By Bloomberg News March 30, 2021 Wells Fargo Visa and Mastercard are facing fresh Street’s turf opposition from U.S. retailers in a long- unwinds running legal fight over the fees merchants with new pay each time consumers swipe their credit or debit card at checkout. Archegos The Retail Industry Leaders Association bank account and the National Retail Federation want to exposure join a federal lawsuit filed in 2005 that led offering Visa, Mastercard and some big banks to agree to pay $5.54 billion to settle the case. By Bloomberg News without While the suit is still in the midst of appeals, March 30, 2021 the industry’s two largest trade groups said Walgreens wants customers to think about posting losses the class of merchants the existing plaintiffs it for more than medicine and snacks — it are seeking to certify is too broad and would wants to be their bank too. By Bloomberg News prevent retailers who don’t like the settlement The drugstore chain will debut a new bank March 30, 2021 terms from opting out and taking their own account for customers that will offer rewards Wells Fargo said it unwound its exposure legal action. tied to its loyalty program, Walgreens Boots to Archegos Capital Management without According to a filing Friday in Brooklyn, Alliance said in a press release Tuesday. The suffering losses. N.Y., the trade groups said they’d tried accounts will be established at MetaBank and Shares of the company advanced after it negotiating with the court-appointed counsel also come with a Mastercard-branded debit issued a statement about the bank’s prime- in the case beginning in mid-2017, but those card, Walgreens said. brokerage relationship with the family office. talks have faltered in recent years. The last “This new product offering will establish “We were well collateralized at all times such meeting was in April 2019, they said. Walgreens as a destination for financial over the last week and no longer have any The groups, whose members have more than services, building on Walgreens’s legacy exposure,” Wells Fargo said. “We did not 100,000 store locations and generate trillions as a one-stop shop for pharmacy and experience losses related to closing out our of dollars in annual sales, asked the judge for convenience,” Stefan Happ, president of exposure.” permission to become parties in the lawsuit. InComm Payments, one of the companies The unwinding of Bill Hwang’s Archegos “The proposed class is entirely too broad helping Walgreens debut the new accounts, reverberated across the globe after banks and in effect would prohibit retailers from said in the release. forced the firm to sell billions of dollars in pursing their own grievances against card Walgreens has been eyeing financial investments accumulated through highly networks,” Deborah White, senior executive services as a way to boost profits. Earlier leveraged bets. The selloff roiled stocks from vice president and general counsel for the this year, the chain said it would debut co- Baidu to ViacomCBS, and both Nomura Retail Industry Leaders Association, said branded credit and prepaid debit cards. In Holdings and Credit Suisse Group have said in a statement on Monday. “We are asking Tuesday’s announcement, Walgreens said it they face potentially significant losses on the court to recognize us as parties after would offer the bank account online and at their exposure. our repeated attempts to work with court- its nearly 9,000 stores in the second half of Wells Fargo’s statement marks the first appointed counsel were rebuffed. We are the year. explicit communication from a U.S. bank on

For up to date and complete coverage go to AmericanBanker.com THURSDAY APRIL 1, 2021 AMERICANBANKER.COM PAGE 10 the issue. Goldman Sachs Group and Morgan graduates it’s hiring will be trained online, in the near term, said the secretary of Stanley were also among Hwang’s brokers. but are likely to work in offices. the Department of Housing and Urban U.S. regulators including the Securities and Virtual training and orientation, including Development. Exchange Commission summoned banks any licensing needed, will begin in July for the Many mortgage industry experts and Monday to explain what happened. bank’s campus hires, with the aim of having investors had priced in an FHA premium Wells Fargo shares rose 2.5% to $39.39 as new employees at offices in October, Bank of reduction under President Biden, predicting of 11:49 a.m. in New York. The firm executed America said Tuesday. In-office assignments that his administration would follow through five block trades valued at $2.14 billion, will depend on local health conditions across on his goals to make housing more affordable. Bloomberg reported Monday. the U.S. as the country works to come back But in a statement Tuesday, HUD Secretary The San Francisco-based bank’sfrom the COVID-19 pandemic, the company Marcia Fudge cited rising delinquencies involvement in the turmoil could lengthen its said. and said HUD has no plans to cut mortgage time under a punitive asset cap if the fallout “Our goal is for you to be able to do this insurance premiums as FHA deals with the leads to losses or regulatory probes, Vivek in your assigned office location in October, fallout from the coronavirus pandemic. Juneja, an analyst at JPMorgan Chase, wrote working alongside Bank of America “Given the current FHA delinquency crisis in a note to clients earlier Tuesday. teammates and colleagues,” the firm said in and our duty to manage risks and the overall Wells Fargo has been under a costly an email to new hires. “We will notify you of health of the fund, we have no near-term Federal Reserve-imposed asset cap for more our final plans well in advance, and provide at plans to change FHA’s mortgage insurance than three years in response to a series of least one week for you to relocate as needed.” premium pricing,” she said in the statement scandals across the firm’s business lines. The A year after Wall Street sent employees that accompanied a report to Congress. bank recently scored its most meaningful home in droves to stop the spread of the “We will continue to rigorously evaluate progress yet by winning the Fed’s acceptance coronavirus, the prospects of a broad return our strategy and work transparently with of a plan to overhaul operations, Bloomberg are getting clearer. At JPMorgan Chase, Congress. Our number one priority is helping reported last month. hundreds of interns are set to work in the families keep their homes and remain safe as “Our key concerns for Wells Fargo are lender’s New York and London offices in the we work toward an equitable recovery.” reputational risk and whether this would coming months, while Citigroup will begin Although the capital reserve ratio of FHA’s increase regulatory scrutiny or delay its asset inviting more workers back to its offices mutual mortgage insurance fund remains cap being lifted,” Juneja wrote. He said that in July and Goldman Sachs Group told its “well above” the minimum 2% required by none of the nation’s biggest money-center incoming class of summer interns they’ll be law, Fudge said, she noted the percentage of banks have been associated with block trades able to work from the company’s offices. FHA loans considered “seriously delinquent” tied to Archegos. As banks deal with where new hires work, was elevated. That rate increased in the Wells Fargo had no immediate comment they’re also trying to hire more women, second quarter of this year to 11.89%, up from on the JPMorgan note. African Americans and those from other 11.59% last quarter, according to FHA’s report historically underrepresented groups. At to Congress. Bank of America, more than 50% of this year’s Former FHA Commissioner Dana Wade, RECRUITING group of full-time campus hires will come who served under former President Donald from diverse backgrounds, the company Trump, in November had also cited the said, without giving a further breakdown of uncertainty around the pandemic and how Bank of the new employees. FHA loans might perform in the near term as the agency’s reason for not lowering America’s premiums. FHA Still, Fudge said that FHA remains in a solid financial position to assist struggling 1,800 campus borrowers. The American Rescue Plan FHA will not — which was signed into law March 11 — hires to be should provide further support to both the cut premiums agency and homeowners, she said. FHA has also extended its foreclosure and eviction trained online, moratorium through June 30 and is offering amid rising borrowers extended forbearance on their work in loans. delinquencies “The actions we are taking now will help position the FHA program to continue to offices By Hannah Lang fulfill its critical mission in the future,” said March 30, 2021 Fudge. q By Bloomberg News WASHINGTON— The Biden March 30, 2021 administration will not move to cut Federal © 2021 Arizent and American Banker. Bank of America said the 1,800 new Housing Administration mortgage premiums All rights reserved.

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