RISK EVENTS REPORT

April 2021

TABLE OF CONTENTS • Introduction • Overview • Risk Events by Category • Significant Management Changes

1233 20th Street NW, Suite 450 For more information contact: Washington, DC 20036 Claude Hanley, Partner Capitalperform.com Tel: 703-861-8623 @CPG_DC [email protected] RISK EVENTS REPORT APRIL 2021

RISK EVENTS REPORT SUMMARY

Capital Performance Group tracks events at financial institutions and financial technology firms across the country which could have risk implications for the industry. This sample report focuses on events at large banks in the United States as well as selected nonbank financial companies, fintechs, and payments companies. Within each risk type, events are sub-divided into three categories based on the relative significance of the event or the size of the fine or penalty levied against the institution in question:

H I G H M E D I U M L O W PRIORITY PRIORITY PRIORITY

The report contains a recap of legislative actions, proposed regulatory rules and enforcement actions among U.S. regulatory agencies involved in financial oversight. Risk events are organized under eight types of risk for easy review: 1. Market/Interest Rate Risk – changes or potential changes to rates 2. Liquidity – changes to markets or regulations that could impact an institution’s ability to fund its assets 3. Operational – when the failure of a system, process, or person results in a loss or penalty 4. Credit – instances of increased charge-offs or nonperforming loans in a particular credit segment 5. Fiduciary & Suitability – when an institution fails to act in the best interest of either shareholders or clients 6. Regulatory Risk– when an institution is penalized due to noncompliance with a law or regulation 7. Reputational – ongoing lawsuits/investigations and settlements of lawsuits 8. Strategic – changes in the competitive environment of a market that could impact the ability of other institutions to meet their strategic goals

PROPRIETARY 2 RISK EVENTS REPORT APRIL 2021

APRIL 2021 OVERVIEW

NOTABLE RISK EVENTS (PAGES 7-20) Market/Interest Rate Risk (pg. 7): Reputational Risk, cont’d (pg. 12): • Household income rose at a record pace of • In a letter to 27 banks, a group of asset 21.1% in March. Household spending increased managers, including Pacific Investment 4.2% in March, the steepest month-over-month Management Co. LLC, urged the lenders to increase since last summer. commit to eliminating greenhouse-gas • The U.S. gross domestic product (GDP) grew at emissions across their operations by 2050 and a 6.4% annual rate and approached its pre- establish interim reduction targets. pandemic size in 1Q21. Many economists Strategic Risk (pg. 15): expect GDP to grow between 6.0% and 7.0% in • 2021. Big national banks are on track to surpass regional and midsize banks in overall customer • Existing home sales dropped 3.7% to a satisfaction. The results are according to the seasonally adjusted annual rate of 6.01 million latest iteration of J.D. Power’s annual U.S. Retail units in March, the lowest level since August Banking Satisfaction Study. 2020, according to the National Association of Realtors. • JPMorgan Chase & Co. is planning to offer its private wealth clients an actively managed • Federal Reserve Chairman Jerome Powell said bitcoin fund, which could be launched as soon that the central bank will begin to slow the pace as this summer. of its bond purchases “well before” raising interest rates. • Large banks, including Bank of America Reputational Risk (pg. 12): Corporation, Inc. and Morgan Stanley, are making wealth-management services to • BlackRock Inc. increased its support for ultra high-net-worth individuals a key part of shareholder-led environmental, social and their strategy, noting increases in the account governance proposals (ESG), and published balances for these clients over the past year. criticisms of public companies that haven’t complied with its ESG requests.

NOTABLE REGULATORY & LEGISLATIVE & EVENTS (PAGES 4 - 6) • The Consumer Financial Protection Bureau (CFPB) issued a final rule extending the mandatory effective date for its general Qualified Mortgage (QM) rule from July 1, 2021 to October 1, 2022. • The Basel Committee published two papers on climate-related risk that will serve as a “conceptual foundation” as the committee works to incorporate climate risk into the Basel regulatory framework. • The Department of Housing and Urban Development (HUD) will revive a 2013 disparate impact rule that makes lenders liable for practices that were unintentionally discriminatory. • President Biden proposed fundamental changes to the tax code under the American Families Plan.

PROPRIETARY 3 RISK EVENTS REPORT APRIL 2021

REGULATORY & LEGISLATIVE EVENTS

REGULATORY EVENTS

1. The CFPB issued a final rule extending the mandatory effective date for its general QM rule from July 1, 2021 to October 1, 2022. With this action, the CFPB also extended the temporary “government-sponsored enterprise (GSE) patch” until the new mandatory compliance date or until Fannie Mae and Freddie Mac exit conservatorship.

2. The Basel Committee published two papers on climate-related risk that will serve as a “conceptual foundation” as the committee works to incorporate climate risk into the Basel regulatory framework.

3. The Department of Housing and Urban Development will revive a 2013 disparate impact rule that makes lenders liable for practices that were unintentionally discriminatory. The proposed rule has not yet been published in the Federal Register.

4. The Federal Housing Finance Agency (FHFA), the federal regulator of Fannie Mae and Freddie Mac, unveiled a new program to ease credit requirements, simplify documentation and waive certain fees for borrowers who make 80.0% or less of their area’s median income and not have missed more than one mortgage payment in the past 12 months. The program only applies to borrowers with existing loans backed by the mortgage giants and it will be up to lenders to participate in it.

5. The Financial Crimes Enforcement Network (FinCEN) is requesting feedback on the Corporate Transparency Act (CTA), included in the Anti Money Laundering Act (AML) act of 2020. The CTA is a reporting requirement that increases the difficulty involved for harmful actors to exploit opaque legal structures for laundering money, financing terrorism, committing tax fraud, and other crimes.

6. The Office of the Comptroller of the Currency (OCC) conditionally approved the application of Paxos Trust Co.’s application to form Paxos National Trust. It is the first cryptocurrency company to form a de novo national trust bank.

7. Alex Oh, who was recently named head of the Securities and Exchange Commission (SEC) Enforcement Division, resigned. Oh cited a complication in a case from her prior legal career.

8. The White House is expected to soon issue an executive order on climate change which could require the Financial Stability Oversight Council to assess how climate change could hurt financial companies and markets, and to gather and share relevant data.

9. The U.S. Treasury Department named John Morton as head of the agency’s new “climate hub”. The new role will entail fostering green finance and tax policies to help reduce carbon emissions and Morton will advise Secretary Yellen on climate-related issues.

10. The OCC announced that it does not plan to implement the revised Community Reinvestment Act (CRA) rule developed by the Trump administration. Regulatory Events continue on the next page.

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REGULATORY & LEGISLATIVE EVENTS

REGULATORY EVENTS, CONTINUED

11. The Treasury Department created a new office to supervise the disbursement of billions in relief funds to combat COVID-19 related economic hardship. The “Office of Recovery Programs” will oversee the distribution of $420.0B in support, including the $1.4K individual stimulus payments from President Biden’s $1.9T relief act.

12. Federal Deposit Insurance Corporation (FDIC) Chair Jelena McWilliams said that reliance on outdated legacy systems and processes threaten the banking sector’s resilience.

13. The SEC says financial industry firms offering ESG investments have a variety of gaps in disclosures and compliance. The SEC issued a risk alert stating firms must ensure consistent compliance across departments and accuracy in public communication on ESG investments.

14. The federal banking agencies and the FinCEN issued a statement on the use of the “Supervisory Guidance on Model Risk Management” to comply with Bank Secrecy Act (BSA)/AML rules. The agencies emphasized that that the guidance does not alter existing BSA/AML regulatory requirements or establish new supervisory expectations.

15. The CFPB intends to delay a pair of debt collection rules finalized at the end of the Trump administration. The first rule, which had been finalized at the end of November 2020, outlines standards around how debt collectors can communicate with borrowers, including how often they can be called, texted or emailed. The second, published in December 2020, clarified the type of disclosures debt collectors must make to borrowers they are pursuing.

16. Treasury Secretary Janet Yellen announced that the Department of the Treasury is working with Group of 20 (G20) countries to agree to a global corporate minimum tax rate, pledging that the U.S.’s cooperation would strengthen the global economy and advance U.S. interests. Finance ministers from the G20 leading economies announced plans to agree on a global minimum tax rate for company profits by the middle of 2021.

17. The CFPB proposed a rule that would prohibit mortgage servicers from initiating foreclosures for the rest of this year. The proposal generally prohibits mortgage servicers from initiating foreclosure proceedings against delinquent borrowers until after December 31, 2021. The rule would apply to all mortgages, both federal and private, on a principal residence. CFPB officials expect 1.7 million borrowers will be at risk of foreclosure around September, when the forbearance program ends.

18. The CFPB rescinded seven policy statements issued in 2020 that provided temporary flexibilities to financial institutions in consumer financial markets including mortgages, credit reporting, credit cards and prepaid cards.

Legislative Events follow on the next page.

PROPRIETARY 5 RISK EVENTS REPORT APRIL 2021

REGULATORY & LEGISLATIVE EVENTS

LEGISLATIVE EVENTS

1. President Biden proposed fundamental changes to the tax code under the American Families Plan. The top rate paid on capital gains and dividends would increase from 20.0% to 39.6%; importantly, capital gains taxes would be owed on unrealized gains at the time of the owner’s death. 1031 like-kind exchange tax deferrals involving gains of more than $500.0K would be eliminated. Carried interest at hedge funds would be taxed as ordinary income. To identify unreported income, banks would be required to report annual inflows and outflows in customer accounts, particularly those of business owners, to the Internal Revenue Service (IRS).

2. The Texas legislature is considering a bill that would prohibit government entities from contracting with banks and other financial services providers that limit business with the firearms industry. Among other consequences, the bill would reduce the municipal underwriting businesses of Bank of America Corporation ($2.8T; Charlotte, NC) and Citigroup Inc. ($2.3T; New York, NY), as Texas is a huge market for state and local debt issuances.

3. The House passed the Eliminate Barriers to Innovation Act of 2021, which seeks to set up a digital asset working group with representatives from the SEC and Commodity Futures Trading Commission (CFTC). The purpose of the group is to “ensure collaboration between regulators and the private sector” in order to foster innovation.

4. The House of Representatives passed the Secure and Fair Enforcement (SAFE) Banking Act. The act would provide protections to financial institutions that serve legal cannabis-based businesses. More specifically, it would provide a safe harbor for financial institutions accepting deposits from, extending credit, or providing payment services to an individual, or business engaged in legal marijuana-related commerce. The bill now goes to the Senate, where its chances of being passed are uncertain. Chairman of the Senate Banking Committee Senator Sherrod Brown (D-OH) announced that he does not yet support the bill.

5. The Senate confirmed Gary Gensler as chairman of the SEC. Gensler, a former Group, Inc. ($1.2T; New York, NY) partner, led the CFTC under the Obama administration.

6. Chairman of the Senate Banking Committee Senator Sherrod Brown (D-OH) sent a letter to leaders at Goldman Sachs Group Inc., Nomura Holding America, Morgan Stanley ($1.1T; New York, NY) and Credit Suisse looking for details on their relationship to the failed investment firm Archegos.

Market and Interest Rate Risk follows on the next page.

PROPRIETARY 6 RISK EVENTS REPORT APRIL 2021

MARKET/INTEREST RATE RISK

MEDIUM PRIORITY 4/30 Household income, spending, and savings surged in March. Household income rose at a record pace of 21.1%. Spending increased 4.2%, the steepest month-over- month increase since last summer. The personal-saving rate jumped to 27.6%, the second highest rate on record. Stimulus payments accounted for $3.9T of the overall $4.2T rise in household income, or 92.9%. 4/29 The U.S. GDP grew at a 6.4% annual rate and approached its pre-pandemic size in 1Q21. Many economists forecast economic growth will accelerate in 2Q21 and expect GDP to grow between 6.0% and 7.0% in 2021. The recovery accelerated in the first quarter as more people received COVID-19 vaccinations, states and cities lifted business restrictions, and stimulus payments were disbursed 4/26 Existing home sales dropped 3.7% to a seasonally adjusted annual rate of 6.01 million units in March, the lowest level since August 2020, according to the National Association of Realtors. Their data also revealed that for first time in over 15 years it is cheaper to buy a new house than a previously owned house. This is a reflection of the fact that there is limited inventory which is fueling price increases in the housing market and erasing the discount that is traditionally associated with older properties. 4/14 Federal Reserve Chairman Jerome Powell said that the central bank will begin to slow the pace of its bond purchases “well before” raising interest rates. Chairman Powell restated his belief that interest rates will remain near zero through 2023.

LOW PRIORITY 4/28 The Federal Reserve Open Market Committee (FOMC) voted unanimously to maintain its near-zero interest rate policy. Chairman Powell stated that the central bank remains committed to holding rates low and continuing with bond purchases until the labor market has fully recovered and the inflation rate reaches 2.0%. The Fed noted that while inflation has recently increased, it expects that to be temporary. 4/27 The Conference Board’s consumer confidence index rose to 121.7 in April from 109.0 the previous month. With four consecutive months of gains, the index is nearing the pre-pandemic level of 132.6 recorded in February 2020. 4/27 Foot traffic at a representative sample of 50 malls was up 86.0% in March from the same month last year, according to mobile-device location data from analytics firm Placer.ai. While that foot traffic was 24.0% lower than in March 2019, some retailers expect increased consumer activity to continue into the summer.

Market and Interest Rate Risk continues on the next page.

PROPRIETARY 7 RISK EVENTS REPORT APRIL 2021

MARKET/INTEREST RATE RISK, CONTINUED

LOW PRIORITY 4/13 Inflation accelerated in March as the consumer-price index (CPI) increased 0.6% in March from February. The CPI rose 2.6% for the year ended March, the biggest 12- month increase since August 2018, according to the Department of Labor. The increase is viewed by many economists as the beginning of a period of increased inflation as the economic recovery strengthens. 4/12 Consumers’ expectations for how much more they will spend in the next year compared to the previous year increased to 4.7% in March, the highest reading since December 2014, according to the Federal Reserve Bank of New York’s monthly Survey of Consumer Expectations. Consumers’ expectations regarding increased inflation and improved employment prospects also rose. 4/7 JPMorgan Chase & Co. ($3.4T; New York, NY) CEO said he’s optimistic the pandemic will end with a U.S. economic rebound that could last at least two years. “I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more quantitative easing (QE), a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom,” Dimon stated. In his statement, he also warned that growth among fintechs and other nonbank lenders is outpacing that of traditional banks. 4/6 The International Monetary Fund (IMF) raised its forecast for global economic growth. According to the IMF, the global economy will grow 6.0% this year, the highest since 1980. This is an upgrade from the IMF’s January forecast of 5.5% global growth. 4/2 Mortgage credit availability is at its lowest level since 2014, according to the Mortgage Bankers Association (MBA). According to the Federal Reserve Bank of New York, about 70.0% of mortgages issued in 2020 went to borrowers with credit scores above 760. 4/2 The economy added 916,000 jobs in March, the most since last August. The unemployment rate declined to 6.0%, from 6.2% in February, according to the Department of Labor. Employment gains were widespread, led by gains in the leisure and hospitality, public and private education, and construction sectors. 4/1 U.S. manufacturing expanded in March at the fastest pace since 1983. Factory activity jumped from 60.8 to 64.7, according to an index from the Institute for Supply Management. Levels reading above 50 indicate expansion.

Liquidity Risk follows on the next page, followed by Operational Risk.

PROPRIETARY 8 RISK EVENTS REPORT APRIL 2021

LIQUIDITY RISK

LOW PRIORITY 4/30 A large portion of pandemic savings won’t be spent quickly. Consequently, banks will likely be dealing with excess liquidity for an extended period. Much of the accumulated savings has been among the richest fifth of the population. The increase in savings also appears to have been skewed toward those 55 years and older. Older and richer people tend to spend less and save more as a percentage of income. Some economists think the propensity to spend will be low based on surveys which indicate households intend to save and pay down debt. Nevertheless, while there is uncertainty about how quickly the accumulated savings will be spent, most economists agree that 2021 and 2022 will be characterized by significant growth in consumer spending. 4/12 The loan portfolios of the 25 leading banks declined by 8.0% during 1Q21 to $5.45T, according to the Federal Reserve. Deposits rose 16.0%, to $10.13T, resulting in the lowest loan-to-deposit ratio since data collection began 36 years ago. 4/7 A survey by the Federal Reserve Bank of New York found that, on average, households set aside 42.0% of the latest round of federal relief checks for savings. The reported savings are slightly higher than those from previous relief payments, but the survey notes lower-income households are likely to use more of the funds for spending.

OPERATIONAL RISK

LOW PRIORITY 4/30 HSBC Holdings Plc’s, parent of HSBC North America Holdings Inc. ($241.5B; New York, NY), global banking unit will raise fixed pay for junior investment bankers in key hubs and hire more of them to share the workload. This marks another global firm to take steps to address burnout among staff; several major banks, including JPMorgan Chase & Co. and Goldman Sachs Group, Inc., have already promised to lighten the work load. JPMorgan Chase & Co. hired 65 analysts and 22 associates globally and is looking to add 100 more bankers and support staff in an effort to ease the increasing workload of junior bankers during the pandemic.

Operational Risk continues on the next page.

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OPERATIONAL RISK, CONTINUED

LOW PRIORITY 4/30 JPMorgan Chase & Co. wants all of its U.S. staff to return to the office by early July “on a consistent, rotational basis”. Employee rotations at JPMorgan will be subject to the current 50.0% occupancy cap until authorities’ social-distancing guidelines change. 4/29 Bank of America Corporation is asking its employees to voluntarily disclose their COVID-19 vaccine status. CEO Brian Moynihan expects “a more normal operating posture” for U.S. staff after Labor Day. 4/27 HSBC Holdings Plc expects to cut its global office footprint by 20.0% this year and is budgeting for half its previous business travel costs due to expectations of adopting a hybrid work model. HSBC’s CEO Ewen Stevenson said he expects bankers to continue to cut back commutes to the office, as well as to continue to replace some business trips with video conferences. The bank, which has already committed to a 40.0% reduction in office space in the long term, expects to get halfway to its goal over the course of this year. 4/19 A number of banks in the U.S. have started using camera software and artificial intelligence (AI) to both analyze customer preferences and to monitor staff and facilities, even as they remain wary about possible backlash over increased surveillance. JPMorgan Chase & Co. reportedly aims to gather insights by observing customer behavior in order to better schedule staff and design branches. City National Bank of Florida ($19.7B; Miami, FL) will begin facial recognition trials early next year to identify customers at teller machines and employees at branches with the goal of replacing less secure authentication measures. 4/12 J.P. Morgan Securities LLC filed a lawsuit against a former employee for allegedly breaching non-solicitation provisions in his employment contract by approaching former customers after joining Wells Fargo & Co. ($2.0T; San Francisco, CA). The JPMorgan Chase & Co. unit has sought a temporary restraining order and permanent injunction prohibiting the former employee from soliciting its clients. 4/2 A report by FICO found that 70.0% of senior executives at global banks have seen a rise in fraud attacks at their institutions since the beginning of the COVID-19 pandemic. More than half of the executives indicated their institutions had increased spending to combat fraud. 4/1 The Department of Justice (DOJ) warned consumers about fraudulent COVID-19 vaccine surveys used to steal money and personal information. These phishing schemes appear to be coming from government, public health agencies, or financial institutions.

Credit Risk follows on the next page, followed by Regulatory Risk.

PROPRIETARY 10 RISK EVENTS REPORT APRIL 2021

CREDIT RISK

LOW PRIORITY 4/7 Corporate bankruptcy filings increased in March, nearly doubling the number in February. March filings were the highest since July 2020. Still, in 2021, total bankruptcy filings (138) in the first quarter were lower than in all but four of the past eleven years. 4/5 Delinquency rates are rising among subprime auto borrowers. According to data from Trans Union, approximately 10.9% of subprime borrowers with outstanding auto loans or leases were more than 60 days past due in February, up from 10.7% in January and 8.7% a year prior. February marked the sixth consecutive month-over- month increase and the highest delinquency level since January 2019. The rising delinquencies highlight the uneven nature of the economic recovery and that segments of the population continue to face significant economic challenges.

REGULATORY RISK

LOW PRIORITY 4/30 The FDIC banned a former Bank of the West ($96.1B; San Francisco, CA) employee from the banking industry after he admitted to opening loans in customers’ names and directing the funds to his personal accounts. 4/22 The OCC is seeking additional penalties from three former Wells Fargo & Co. executives for their role in the fake accounts scandal. In total, $11.0MM additional dollars have been requested from former community banking executive Claudia Russ Andersen, chief auditor David Julian, and former executive audit director Paul McLinko. 4/21 The Financial Industry Regulatory Authority (FINRA) barred a former Goldman Sachs Group, Inc. research analyst for allegedly buying securities after learning that a fellow analyst would be issuing a positive recommendation. 4/15 The Massachusetts Securities Division is seeking to revoke Robinhood Markets, Inc.’s (Menlo Park, CA) registration as a broker-dealer, which would prevent the company from doing business in the state. The regulator stated that Robinhood’s actions pose “a substantial and continued risk to Massachusetts investors.” Subsequently, Robinhood filed a complaint and a motion for preliminary injunction to prevent the Massachusetts Securities Division from proceeding.

Reputational Risk follows on the next page.

PROPRIETARY 11 RISK EVENTS REPORT APRIL 2021

REPUTATIONAL RISK

MEDIUM PRIORITY 4/30 BlackRock Inc. ($177.0B; New York, NY) increased its support for shareholder-led ESG proposals, and published criticisms of public companies that haven’t complied with its ESG requests. On approximately 170 ESG shareholder proposals that BlackRock voted on during the first half of the proxy year, BlackRock backed 91.0% of environmental proposals, 23.0% of social proposals, and 26.0% of corporate- governance proposals.

4/19 In a letter to 27 banks, a group of asset managers, including Pacific Investment Management Co. LLC, urged the lenders to commit to eliminating greenhouse-gas emissions, including those generated from lending, trading, and underwriting, by 2050 and establish interim reduction targets. The investors sent the letter to lenders including JPMorgan Chase & Co., HSBC Holdings Plc, and UBS Group AG, parent of UBS Bank USA ($87.3B; Salt Lake City, UT).

LOW PRIORITY 4/29 Reportedly, Robinhood Markets is facing a backlog of customer service issues. The surge in customer service issues and complaints is partly a reflection of the company’s rapid growth as well as its decision in January to suspend trading in some stocks. In some cases, Robinhood has locked customers’ accounts for more than a month, denying them access to their money. 4/27 PNC Financial Services Group, Inc. ($466.9B; Pittsburgh, PA) unveiled a $88.0B four- year plan in loans, investments and other financial support to facilitate economic opportunity for low- and moderate-income individuals and communities, people and communities of color, and other underserved individuals and communities. The plan is to start January 1, 2022. 4/27 JPMorgan Chase & Co.’s CEO Jamie Dimon announced that he is helping to launch the Second Chance Business Coalition, a group that aims to expand hiring of former criminals. Dimon and his co-chair Craig Arnold, Chairman and CEO of power management company Eaton, stated that they have enlisted close to 30 blue chip companies. 4/27 Wells Fargo & Co. shareholders support for a non-binding resolution on executive compensation declined sharply this year compared to 2020. changes dropped from 2020-2021, following a year of reduced earnings for the bank. Chairman of the board Charles Noski indicated that the board would take the feedback into consideration for future compensation packages. Reputational Risk continues on the next page.

PROPRIETARY 12 RISK EVENTS REPORT APRIL 2021

REPUTATIONAL RISK, CONTINUED

LOW PRIORITY 4/22 Innergex Renewable Energy Inc., a Canadian renewable energy firm, filed lawsuits against Citigroup Inc. for allegedly rejecting force majeure declarations during a February winter storm and billing them more than $100.0MM for power, according to Reuters. The lawsuits were filed in Harris County, Texas. 4/21 Visa Inc. ($80.4B; Foster City, CA) committed to reach net-zero emissions by 2040 and announced that the payments firm achieved carbon neutrality in 2020 across its operations. Visa also signed on to The Climate Pledge, co-founded by Amazon, and became a member of the World Wildlife Fund Climate Business Network. 4/20 Forty-nine of 1,548 Goldman Sachs Group, Inc. U.S. executives are Black or African American, representing 3.2%, according to a recent internal report. The company set a goal of having Black and Hispanic/Latinx employees comprise 11.0% and 14.0% of its workforce “over time”. 4/19 JPMorgan Chase & Co. faced criticism for its plans to finance a breakaway European Super League proposed by a dozen soccer clubs from Italy, Spain and England. The bank had agreed to reportedly provide more than $4.0B in financing to the breakaway league, but the league collapsed only 48 hours after it was announced after more than half of its 12 founding clubs changed their minds and announced they would not take part. JPMorgan subsequently apologized for its role in financing for the breakaway soccer league, admitting in a statement that it had “misjudged” how the project would be viewed by fans. 4/17 A former JPMorgan Chase & Co. commodities trader claimed in court papers he was abruptly forced to leave the bank’s precious metals trading group as soon as JPMorgan execs discovered the extent of his cooperation with the U.S. DOJ. The bank justified the former trader’s termination by claiming he himself had engaged in trades which had “the appearance of spoofing,” a claim which the former trader says was “retaliatory.” The former trader is seeking unspecified damages. 4/15 JPMorgan Chase & Co. aims to finance more than $2.5T over 10 years initiatives that combat climate change and contribute to sustainable development. Of the $2.5T effort, $1.0T will be focused on green initiatives, including renewable energy and clean technologies. Additionally, the bank plans to finance and facilitate transactions that support socioeconomic development and quality of life in developing countries. 4/14 Federal Reserve research found that businesses with Hispanic, Black and Asian American owners were more affected by the COVID-19 pandemic and had greater difficulty obtaining funding than white-owned businesses. 24.0% of Black business owners and 25.0% of Hispanic business owners deemed to be a low credit risk received the full financing they applied for, compared with 48.0% of white applicants. Reputational Risk continues on the next page.

PROPRIETARY 13 RISK EVENTS REPORT APRIL 2021

REPUTATIONAL RISK, CONTINUED

LOW PRIORITY

4/14 In separate lawsuits in the U.K. and U.S., former JPMorgan Chase & Co. traders involved in a U.S. DOJ investigation into possible market manipulation are suing the bank. They say they were dismissed unfairly and are asking to be rehired. 4/14 Mastercard Inc. ($33.6B; Purchase, NY) is changing the requirements it sets for financial institutions to process payments for sellers of adult content online, requiring that the sellers ensure “clear, unambiguous and documented consent” in any adult content. 4/13 Wells Fargo & Co. announced a new round of investments in Black-owned banks. The group of 5 new banks across the country brings the total number of Black-owned banks that Wells Fargo has invested in to 11. 4/13 Morgan Stanley committed to mobilizing $750.0B to support low-carbon solutions by 2030. The commitment will support the sustainable development goals of the United Nations. Increased activities such as clean tech and green bond financing will help Morgan Stanley achieve the commitment. 4/12 JPMorgan Chase & Co.’s commercial banking unit launched a new green economy specialized industry. The new team will initially focus on the renewable energy, efficiency technology, sustainable finance and agriculture and food technology sectors. 4/8 Bank of America Corporation committed to deploy $1.5T in sustainable finance by 2030. The bank will help low-carbon and other sustainable business through lending, capital raising, advisory and investment services. 4/7 BlackRock, Inc. must meet workforce diversity and other ESG goals in order to comply with the terms of its corporate borrowing facility. If the company fails to meet its diversity and ESG goals, it will pay more in interest. The company aims to increase the share of Black and Latino employees to 30.0% by 2024 to increase the share of women in its senior leadership ranks by 3.0% each year. 4/7 PayPal Holdings, Inc. ($70.4B; San Jose, CA) announced a goal to reach net-zero greenhouse gas emissions by 2040. The company also announced goals to power all data centers with 100.0% renewable energy sources by 2023. PayPal also launched a vendor ESG engagement initiative and joined the CDP Supply Chain organization to mobilize its vendor climate efforts.

Reputational Risk continues on the next page, followed by Strategic Risk.

PROPRIETARY 14 RISK EVENTS REPORT APRIL 2021

REPUTATIONAL RISK, CONTINUED

LOW PRIORITY

4/7 Cryptocurrency investment firm Paradigm announced the launch of a cryptocurrency alliance called the Crypto Council for Innovation, alongside Square Inc. ($9.9B; San Francisco, CA) and Coinbase Inc. (San Francisco, CA). The group will support governments and institutions by informing and encouraging responsible policies surrounding cryptocurrency and aims to educate the public about the potential for cryptocurrency to create positive change. 4/6 Reportedly, BlackRock, Inc. conducted an independent audit of how its business may have contributed to racial inequities in the financial system. The company said it was doing so in response to a shareholder request. Other large financial institutions, such as Goldman Sachs Group, Citigroup Inc., and Wells Fargo & Co. have asked shareholders to vote against similar audits. 4/1 The U.K.’s Payments Systems Regulator announced that five companies were found guilty of collusion and operation of a cartel by agreeing not to compete with one another from 2012-2018. Mastercard Inc. was one of the companies, and agreed to pay a portion of a fine totaling £32.0MM.

STRATEGIC RISK

MEDIUM PRIORITY 4/27 Big national banks are on track to surpass regional and midsize banks in overall customer satisfaction. The results are according to the latest iteration of J.D. Power’s annual U.S. Retail Banking Satisfaction Study. The study measures satisfaction in six categories: account opening; communication and advice; channel activities; convenience; problem resolution; and products and fees. While midsize banks have historically enjoyed a large advantage in customer satisfaction, big national banks significantly closed the gap in 2020 on the strength of their digital offerings and better clarity around fees. Customer satisfaction was highest among people who felt their bank had supported them in 2020, through fee waivers or late payment forgiveness. Consumers who felt they were financially worse off than they were a year earlier gave particularly high marks to the largest banks.

Strategic Risk continues on the next page.

PROPRIETARY 15 RISK EVENTS REPORT APRIL 2021

STRATEGIC RISK, CONTINUED

MEDIUM PRIORITY (CONTINUED) 4/26 JPMorgan Chase & Co. is planning to offer an actively managed bitcoin fund to its private wealth clients. The fund could be launched as soon as this summer. New York Digital Investment Group LLC will reportedly serve as the lender’s custody provider. 4/19 Large banks, including Bank of America Corporation, Citigroup, and Morgan Stanley, are making wealth-management services to ultra high-net-worth individuals a key part of their strategy. They note significant increases in the account balances of such clients over the past year. “Demand for advice is surging,” said Andy Sieg, president of Bank of America’s Merrill Lynch .

LOW PRIORITY 4/29 Social Finance (SoFi) (San Francisco, CA) will allow customers to redeem rewards earned through the company’s cash-back credit card for Bitcoin or Ethereum. Starting late March, clients can apply their 2.0% cash-back rewards on the SoFi credit card toward the two cryptocurrencies. 4/29 M&T Bank Corporation ($142.6B; Buffalo, NY) opened a technology hub blocks from its downtown Buffalo headquarters. The bank plans to hire 1,000 tech workers in the next three to five years. The bank invested $58.0MM to build the space, which will serve as a workspace for existing M&T employees and host the Tech Academy, a continuous learning program for local technologists and residents. 4/28 Fifth Third Bank NA, a unit of Fifth Third Bancorp ($204.7B; Cincinnati, OH), entered into a definitive agreement to transition custodianship of its health savings account (HSA) portfolio to HealthEquity Inc. The transition of custodianship is subject to regulatory approval and satisfaction of other customary closing conditions. 4/28 U.S. Bancorp ($553.9B; Minneapolis, MN) is hoping to capitalize on the special purpose acquisition companies (SPAC) boom by offering customized solutions for SPACs. Through its subsidiary U.S. Bank NA, the company will offer regulatory and accounting services and trustee needs to SPACs. 4/27 Visa Inc. said total payment volumes in 1Q21 were 11.0% higher compared to the same period last year, signaling a return to positive growth for credit and “card present” transactions. 4/26 SoFi announced the launch of The Fundamentals of Personal Finance Specialization in partnership with Coursera, one of the world’s leading online learning platforms. The program, comprising five courses created by SoFi and their team of in-house financial planners, will provide members with the basic fundamentals of personal finance, including an introduction to personal finances, saving for the future, managing debt, fundamentals of investing, and the basics of risk management. Strategic Risk continues on the next page.

PROPRIETARY 16 RISK EVENTS REPORT APRIL 2021

STRATEGIC RISK, CONTINUED

LOW PRIORITY 4/23 Umpqua Holdings Corporation ($29.2B; Portland, OR) completed the sale of the wealth management business of Umpqua Investments to Steward Partners Holdings, LLC. The acquisition will add 22 financial advisers managing $3.4B in client assets and raises Steward Partners’ total client assets under management to more than $22.0B. 4/23 Ally Financial Inc. ($182.2B; Detroit, MI) is partnering with Microsoft’s Enterprise Acceleration Program to use quantum computing to analyze decisions and improve customer service. With an understanding that large-scale quantum computers will not be available soon, Ally’s intention is to develop a quantum-ready workforce. 4/23 Metro Bank PLC ($22.6B; London, England) wants to grow its consumer finance lending portfolio to £2.0B as it seeks to diversify its asset mix. The bank will use its recent acquisition of RateSetter as a growth tool in unsecured lending. 4/23 Regions Financial Corp. ($147.6B; Birmingham, AL) is looking to increase its expertise and investments in renewable energy. The bank is beginning to work with clients, even those of traditional oil and gas industries, to finance investments in projects that could reduce greenhouse gas emissions. 4/20 PayPal Inc.’s mobile peer-to-peer payment app Venmo will now let users buy, hold, and sell bitcoin and other digital tokens. The feature will let users invest in four different cryptocurrencies – Bitcoin, Ethereum, Litecoin and Bitcoin Cash with a minimum spending requirement of $1.00. 4/20 Axos Financial Inc. announced that its wholly owned unit, Axos Clearing LLC, agreed to acquire certain assets and liabilities of E*TRADE Advisor Services for $55.0MM in cash. Axos expects the transaction to close in 3Q21. E*TRADE Advisor Services is the registered investment adviser custody business which Morgan Stanley acquired through its acquisition of E*TRADE Financial Corp. last year. 4/20 KeyCorp ($171.4; Cleveland, OH) announced that it will consolidate 70 branches, representing about 7.0% of its network. Most of the closures are planned for 2Q21. 4/19 Mastercard Inc. is acquiring digital identity data provider Ekata for $850.0MM. The Seattle firm provides digital identify verification data powered by AI to businesses.

4/17 Citigroup Inc. is making a push to grow its wealth management presence in Asia as it simultaneously pivots away from consumer banking in the region. The company plans to hire over 1,000 private bankers and relationship managers in Hong Kong and Singapore. The bank aims to grow assets under management for Asian clients to $450.0B by 2025, up from $300.0B now.

Strategic Risk continues on the next page.

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STRATEGIC RISK, CONTINUED

LOW PRIORITY 4/16 In earnings calls, executives from Bank of New York Mellon Corp. ($469.6B; New York, NY) and State Street Corp. ($314.7B; Boston, MA) emphasized that digital assets are here to stay. Executives at both banks stated that they would be introducing traditional investors to digital currencies and investment opportunities as the market develops. 4/15 Citigroup Inc. will close its consumer businesses in 13 countries across Asia, Europe, the Middle East and Africa. The exit is a part of the banks broader strategic initiative to invest in its U.S. operations to better compete with peers like JPMorgan and Bank of America. 4/14 State Street Corp. announced intentions to start its first ESG cash collateral reinvestment strategy. State Street will provide securities lending to clients with a cash collateral reinvestment strategy that incorporates an ESG scoring system. 4/13 PNC Financial Services Group, Inc. is launching a new digital service called Low Cash Mode, that notifies consumer checking customers when their account balance is about to become negative and allows them 24 hours to prioritize or cancel pending payments or to deposit additional funds. The service is aimed at helping customers avoid overdraft fees. A number of other banks have recently taken steps to reduce overdraft charges. The CFPB is expected to make enforcement of overdraft practices a priority. 4/13 More banks are building digital savings tools to foster competitive differentiation. Huntington Bancshares Inc. ($123.0B; Columbus, OH), Ally Financial, Fifth Third Bancorp and KeyCorp all announced new “smart savings” product features in the last year. The features range from algorithmic paycheck saving to personal finance apps. While the automated savings tools are meant to help customers save, they’re also a competitive response to the easy savings solutions offered by fintechs. 4/9 Improving mobile and online banking experiences are among the top demands from consumers, according to a survey by MX Research. The responses indicate that banks still have room to improve in areas such as functionality and ease of navigation. 4/9 State Street Corp. announced plans to create a digital currency trading platform and expects to launch it by the middle of 2021. The platform will allow investors to trade cash cryptocurrency through existing financial relationships. 4/8 PayPal Holdings, Inc. announced plans to build a mobile app that will connect consumers to millions of merchants. In the app, consumers can use PayPal to make purchases, in stores or online, and receive personalized offers based on their purchasing history. Strategic Risk continues on the next page.

PROPRIETARY 18 RISK EVENTS REPORT APRIL 2021

STRATEGIC RISK, CONTINUED

LOW PRIORITY 4/8 Reportedly, a large number of staffers at Goldman Sachs Group Inc. are leaving its consumer banking business, Marcus. The development follows reports of increased hours for many employees across the bank. 4/6 Data released by Digital Currency manager Coinshares showed record inflows into cryptocurrency funds in 1Q21, totaling $4.5B. The total represents an 11.0% increase over 4Q20. 4/5 Stripe, Inc. (San Francisco, CA) is now facilitating payments with Clubhouse, a fast- growing social audio app, by enabling Clubhouse listeners to send money instantly and directly to individual creators of content on the app. This move could prove to be a breakthrough in social media monetization. The app aims to solve a problem perceived by Clubhouse that “creators were building a big audience on certain social media platforms but then having to move off of those platforms to actually monetize that audience”. 4/5 SoFi announced plans to refinance auto loans through a partnership with MotoRefi. MotoRefi is a startup whose digital platform connects debtors with banks and credit unions and handles the paperwork of reworking auto loans with state motor vehicle departments. MotoRefi essentially will embed its lending machinery in the SoFi site and will contribute a share of revenue for each transaction that comes through the new sales channel. 4/4 JPMorgan Chase & Co.’s head of customer experience and digital, Allison Beer, stated that 80.0% of consumers say they prefer digital banking tools over in-person interaction. Consumers increasingly want personalized banking services, automated services and access to real-time payments as part of their banking experience, Beer noted. 4/2 Bank of America Corporation acquired Santa Barbara, Calif.-based healthcare payments and technology company Axia Technologies. The acquisition is part of the bank’s effort to build a proprietary payments platform for its healthcare clients. 4/1 MUFG Union Bank NA, a MUFG Americas Holdings Corp.’s ($167.8B; New York, NY) subsidiary, agreed to sell its homeowners association services division, which provides services to community management companies and homeowners associations across the U.S., to PacWest Bancorp unit Pacific Western Bank. The division currently houses approximately $4.0B in deposits and $6.0B in loans. 4/1 One in five Americans opened accounts with a new financial institution in a recent 12-month period — primarily at large banks, digital banks and credit unions. The findings are according to an Ipsos survey in early February of more than 1,000 Americans on behalf of FIS.

Strategic Risk continues on the next page.

PROPRIETARY 19 RISK EVENTS REPORT APRIL 2021

STRATEGIC RISK, CONTINUED

LOW PRIORITY 4/1 Morgan Stanley submitted a regulatory filing that names 12 institutional funds that will have exposure to bitcoin indirectly through cash settled futures or through investments in Grayscale Bitcoin Trust. Morgan Stanley says the initial rollout will focus on five funds: Institutional Fund, Institutional Fund Trust, Europe Opportunity Fund, Insight Fund and Variable Insurance Fund. 4/1 Toronto-Dominion Bank, parent of TD Group U.S. Holdings LLC ($507.3B; Wilmington, DE), CEO Bharat Masrani says he is “very open” to a merger or acquisition that would expand its U.S. retail banking footprint. With about $9.6B in capital available, the bank is well positioned to pursue deals. 4/1 Despite an acceleration in the shift toward digital banking, consumer satisfaction of the 9 largest primarily-digital focused banks with few or no branches, including Capital One, Charles Schwab ($549.0B; Westlake, TX), and Discover ($112.9B; Riverwoods, IL) declined over the past year, according to the J.D. Power 2021 U.S. Direct Banking Satisfaction Study. Overall satisfaction for direct banks scored 852 on the 1,000-point scale, a 12-point decline from last year’s study.

Significant Management Changes follow on the next page.

PROPRIETARY 20 RISK EVENTS REPORT APRIL 2021

SIGNIFICANT MANAGEMENT CHANGES

DATE BANK MANAGEMENT CHANGE 4/30 KeyCorp Hired former JPMorgan Chase & Co. executive Joe Skarda to lead its KeyBank Wealth Management unit. Skarda replaces Terry Jenkins, who retired as the unit’s president in March.

4/27 Wells Fargo & Announced that Head of Private Wealth Management Julia Wellborn is Co. leaving the company to pursue other opportunities. Wellborn joined the bank in 2019 from Comerica Bank. 4/26 Citizens Announced that Chris Weyrauch will join the bank as head of wealth Financial management, effective immediately. Weyrauch comes to Citizens after Group, Inc. a 25-year career at TIAA where he built and led its direct-to-consumer business. 4/23 M&T Bank Named John D’angelo director of its new ESG office. Previously, Corp. D’Angelo was the bank’s chief risk officer.

4/22 Goldman Rehired Brian King as consumer chief risk officer and head of Sachs Group, business operations. King previously led risk oversight for Goldman’s Inc. consumer division until 2020, when he became chief risk officer for Wells Fargo & Co.’s consumer and small business banking division. 4/21 Goldman Promoted Kim Posnett to co-head its client services team alongside Sachs Group, Sam Morgan. Posnett will continue to lead the investment banking Inc. services unit. 4/16 Wells Fargo & Announced that David Galloreese, who is the head of human Co. resources, is departing the bank to take a role outside the company.

4/14 Citigroup Inc. Named Ida Liu global head of , one of many moves to reorganize its wealth management unit. Liu was previously the head of Citi Private Bank North America. 4/6 MUFG Union Named Lisa Roberts as the new head of community banking and Bank NA Sterling Sankey as head of wealth management. 4/6 Goldman Promoted Heather Kennedy Miner to chief operating officer. Sachs Group, Inc. 4/5 HSBC Bank Named Tara Latini head of wealth and personal banking. Latini most USA NA recently was country head of wealth and personal banking in Malaysia. 4/2 Citigroup Inc. Hired Ken Blanco, director of the FinCEN, to be chief compliance officer of its newly created financial crimes unit. Blanco will depart FinCEN effective April 9, 2021.

PROPRIETARY 21 RISK EVENTS REPORT APRIL 2021

NOTE ON THIS REPORT

THE REPORT

This report is designed to provide information on events impacting a certain group of banks and financial technology companies. It is not meant to be a comprehensive view of every fine or penalty levied against any financial institution operating in the United States. Events involving insurance or investment banking are not included in this report. This report is based on publicly available information and there may be details related to mergers and acquisitions, fines or penalties, and the settlement of lawsuits that are not publicly disclosed. CPG has tried to capture as much detail available to the public as possible in our summaries of events.

OUR SOURCES

All information related to bank asset sizes and location comes from S&P Global Market Intelligence.

In addition, we leverage a variety of sources in our work to track risk, legislative, and regulatory events, including the following:

PUBLICATIONS REGULATORY PRESS RELEASES ▪ American Banker ▪ Consumer Financial Protection Bureau ▪ New York Times ▪ Department of Justice ▪ Financial Times ▪ Federal Deposit Insurance Corporation ▪ Wall Street Journal ▪ Federal Reserve Board ▪ S&P Global Market Intelligence ▪ Financial Crimes Enforcement Network ▪ News Summaries from Various Financial ▪ Department of the Treasury and other Services Trade Publications federal agencies ▪ Financial Industry Regulatory Authority ▪ Office of the Comptroller of the Currency ▪ Securities & Exchange Commission

PROPRIETARY 22 RISK EVENTS REPORT APRIL 2021

CAPITAL PERFORMANCE GROUP IS HELPING BANKERS IDENTIFY NEW STRATEGIC OPPORTUNITIES AND TRANSFORM BUSINESS MODELS.

STRATEGIC MARKETING DELIVERY CHANNEL CREDIT RISK PLANNING AND SALES TRANSFORMATION MANAGEMENT & ENHANCEMENT FINANCE

Loan Portfolio Reporting & Strategic Planning Marketing Transformation Branch Network Policy Review Optimization Balanced Scorecards & Organizational Design Customer and Benchmarking Market Analytics ATM Network and Alternative Delivery Design Implementation Assistance Cost Reduction Programs for Profitability & Financial Acquisition Marketing and Planning Systems Lead Generation Digital Channel Strategy Credit Process Assessment Process Reengineering & Redesign Customer Retention and Sales and Relationship Enterprise Risk Reporting: Customer Experience Deepening Programs Management Program External Risk Events Improvement Design Monitoring Sales and Marketing Finance Department Workflow Alignment Market-Level Investment M&A Support Services Process Assessment and Optimization Modeling Redesign

Contact Claude Hanley, Partner: [email protected]/703-861-8623 www.capitalperform.com @CPG_DC

PROPRIETARY 23