TUESDAY JANUARY 14, 2020 VOL. 185 No. 9 AMERICANBANKER.COM Follow us on Twitter @AmerBanker GOP lawmaker’s 5 bill would repeal small-business How important is BSA risk loan rules New legislation in Congress seeks to do to community banks? away with a data-collection mandate that addressed discrimination in business % of bank respondents lending. The repeal measure has the support of two bank industry groups based See story on page 3 in Washington. Page 7

Banks best Big Tech on Very important 6 trust, but not much else Silicon Valley giants are better innovators, Important software developers and data managers, but banks’ inherent advantages shouldn’t be discounted, says Sonny Singh, a senior vice Moderately important president at Oracle. Page 8

Slightly important Security Bank in Tennessee 7 to buy neighboring lender The bank will top $500 million in assets after Not important it acquires F&M Bancshares. Page 9 0% 10% 20% 30%40% 50% Bank planned in Source: CSBS survey of 571 banks with less than $10B in assets (April-July) 8 nation’s capital secures FDIC approval Organizers of Founders Bank in Washington still need to raise at least $25 million before Banks try pooling resources opening. Page 9 dailybriefing 3 to help defray AML costs A North Carolina group is trying to take JPMorgan puts senior Truist unveils logo that regulators’ cue to work together. A successful 9 credit trader on leave 1 emphasizes high-touch, effort could encourage others to follow its over WhatsApp use high-tech focus lead. (See chart above.) Page 3 WhatsApp may be a great way to The regional bank, formed from the merger communicate with friends, but when of BB&T and SunTrust, will begin marketing Eleven bankers Wall Streeters touch it, their firms get very its new brand in conjunction with next 4 and disruptors to nervous. Page 10 month’s Super Bowl. Page 2 watch in 2020 Can Charlie Scharf fix what ails Wells Fargo? Ten fintech Can California mini-CFPB How will Kelly King and Bill Rogers manage 10 forecasts for 2 pick up slack left the integration of the biggest bank merger the ’20s by federal agency? since the early 2000s? And will New Jersey A seasoned investor in startups offers his top Former CFPB Director Richard Cordray Gov. Phil Murphy be able to beat back predictions for the coming decade. Among and consumer advocates have designed a opposition from the banking industry and them: Big tech firms will become big players proposed state consumer agency that would make good on his promise to create a state- in financial services.Page 10 subject more financial firms and fintechs to owned bank? Here are 11 leaders to keep an state oversight. Page 2 eye on in 2020. Page 4 TUESDAY JANUARY 14, 2020 AMERICANBANKER.COM PAGE 2

“We still need to drive clients to existing REGIONAL BANKS brands” until the branches are converted, FINTECH REGULATIONS Wilson said. “We need to be deliberate about that transition.” Truist unveils Truist will add its logo to sports venues Can California’s over the next 18 to 24 months, “working with logo that each organization to customize the approach mini-CFPB taken,” Wilson said. Improving the customer experience with emphasizes technology is a cornerstone of the deal that pick up slack created Truist. The company intends to high-touch, reinvest some of the cost savings from the left by federal merger into new products and services, including enhanced digital offerings. high-tech Kelly King, Truist’s chairman and CEO, agency? has called that effort T3 because the goal focus is to blend technology and high-touch By Kate Berry service to generate more trust with clients. January 10, 2020 By Paul Davis Truist executives have said such moves are An effort by California to create a powerful January 13, 2020 necessary to compete more effectively with state consumer protection bureau could have Truist Financial in Charlotte, N.C., is bigger banks such as JPMorgan Chase and a significant impact on banks, debt collectors seeking to emphasize customer experience Bank of America. and other financial firms as Gov. Gavin and technology with its new logo. Wilson said he believes the companies Newsom seeks to fight against the Trump The $470 billion-asset company, formed have made progress with brand acceptance administration’s regulatory rollback. by the $30 billion merger of BB&T and Sun- since unveiling the Truist name in June. An The new agency, modeled on the federal Trust Banks, debuted its brand Monday. The informal poll by American Banker conducted Consumer Financial Protection Bureau, is purple logo, a blend of the prior banks’ bur- after that announcement found that an being pushed by former CFPB Director Richard gundy and blue colors, incorporates two con- overwhelming majority of respondents Cordray and several other former agency nected T’s designed to represent the personal disliked the name. officials. If approved by California’s legislature, touch of Truist employees and its technolo- “With each day we see more people getting it would create a new office of innovation within gy offerings. The interlocking letters are also excited about what we can do with Truist,” the agency and subject more financial firms to supposed to symbolize the coming together Wilson said. state oversight. of two institutions of similar size, and the sol- “Anytime you introduce something new it In part, the state agency appears designed id, square shape of the logo is meant to con- takes time for people to get familiar with that to guard against the ebbs and flows of policy note trust, said Dontá Wilson, the company’s newness,” he said. “What hasn’t changed is in Washington, where Republicans have put chief digital and client experience officer. our commitment to taking care of clients and less emphasis on exercising the federal CFPB’s teammates. Most people ultimately judge powers. The big reveal you on how you do those things.” “It is going to catapult California into the Truist will begin marketing the brand in Miami in conjunction with next month’s Super Bowl, then employ a “boom and Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 echo” approach that will feature high-profile Phone 212-803-8200 AmericanBanker.com advertising, Wilson said in an interview. The logo “shows how Truist will innovate Editor in Chief Rob Blackwell 571.403.3834 Copy Editor Neil Cassidy 212.803.8440 and redefine the client experience,” he said. Managing Editor Dean Anason 770.621.9935 “It was the result of rigorous research and Reporters/Producers Executive Editor Bonnie McGeer 212.803.8430 feedback from clients and teammates.” Laura Alix 860.836.5431, Kate Berry 562.434.5432 Washington Bureau Chief Joe Adler 571.403.3832 Truist will focus its marketing largely on Jim Dobbs 605.310.7780 Senior Editor Alan Kline 571.403.3846 digital channels, including search engines, John Heltman 571.403.3847 though it will also use billboards and other Editor at Large Penny Crosman 212.803.8673 Will Hernandez 212.803.8731 traditional means to get its message across. BankThink Editor Rachel Witkowski 571.403.3857 Hannah Lang 571.403.3855 Wilson declined to outline the costs. Community Banking Editor Paul Davis 336.852.9496 Ken McCarthy 724.996.2188, Andy Peters 404.500.5770 It will take time to replace BB&T and Technology Editor Suleman Din 212.803.8738 SunTrust colors and logos at branches since Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 they will remain open during the switchover. Digital Managing Editor Jackie Stewart 571.403.3852 The plan is to integrate and rebrand those Christopher Wood 212.803.8437 Kevin Wack 626.486.2341 facilities over the next 18 to 24 months.

For up to date and complete coverage go to AmericanBanker.com TUESDAY JANUARY 14, 2020 AMERICANBANKER.COM PAGE 3 forefront of consumer protection around the industries “and increased fees on existing Coalition, a leading consumer advocacy group, country on the state level,” said Cordray, who licensees,” the budget stated. said in an interview Friday. “This is something served six years as director of the federal CFPB. Democrats have complained that the advocates have been encouraging given the “This is an emphatic statement by the governor transition from the Obama to the Trump takeover of the CFPB by Trump and the slow- that he intends California to be a real leader on administration has resulted in a drop in walking of rules.” consumer protection.” enforcement actions by the federal CFPB Das said consumer advocates have been How big an impact it will ultimately have on with lighter penalties for wrongdoers. Since discussing with current DBO Commissioner national financial firms is still unclear, though it California often leads the nation in regulatory Manual Alvarez, a former CFPB enforcement may effectively act as a “mini-CFPB” given how policymaking, financial institutions will have to attorney, ways in which a revamped department many companies do business in California. The pay close attention to a state CFPB. could also help with housing issues. state has long been a laboratory for progressive Newsom’s plan seeks “to fill the consumer “We are ramping up all our work to talk about ideas and Democrats now hold the governor’s protection gaps left by federal withdrawal and the displacement crisis in California,” Das said. mansion as well as super-majorities in both inaction,” according to a statement Thursday “If there is a new DBO, it can go after financial legislative chambers. As a result, Democrats can from Newsom’s office. actors responsible for displacement of tenants.” make policy in California without much input No information has been released so far on Still, it is unclear yet, beyond covering more from Republicans. how a revamped department would address entities, what additional tools California’s DBO “It not only creates a super-state analog to the innovation by fintechs. California Attorney would be given. CFPB, but it charts a new direction that will be General Xavier Becerra joined 21 other state The governor’s plan would set aside $44.3 very interesting,” Cordray said. “It is a huge first attorneys general in opposing the federal million in the state’s 2020-21 budget to cover step to have the governor champion consumer CFPB’s fintech sandbox because it would the first three years of startup costs for the advocacy in this manner.” potentially shield companies from the threat of revamped department, which currently has a Newsom’s budget released Friday would legal liability in the testing of new products and budget of $102 million. require legislation to revamp the current services that could benefit consumers. As for concerns that the state consumer Department of Business Oversight and rename Cordray, who co-wrote the bill and is serving protection agency may conflict with the federal it the Department of Financial Protection as de facto spokesman for Newsom’s plan, said CFPB, the Dodd-Frank Act expressly provided and Innovation. The plan would expand the it would allow the consumer agency to move for expansive consumer protections at the department’s authority to pursue “unlicensed forward in much the same way as the federal state level that go beyond federal safeguards, financial services providers not currently CFPB did after Dodd-Frank passed. Cordray said. subject to regulatory oversight such as debt “The same process will unfold in California,” “To put it simply, the law says clearly that fed- collectors, credit reporting agencies and said Cordray. “The governor is focused eral law sets a floor, not a ceiling, on consumer financial technology [fintech] companies,” both on consumer protection and financial financial protection in this country,” Cordray according to the budget document. innovation. He wants to make sure that both of testified before the state Assembly in March. It would also “protect consumers through those important pieces can be advanced and “Congress thus opened the door for more vigor- enforcement against unfair, deceptive, and balanced and coordinated.” ous protection of consumer rights through state abusive practices,” known as UDAAP. Newsom’s budget includes legislation called officials who can ensure that these laws are Experts said UDAAP will be a big concern. the California Consumer Financial Protection strong and that they are enforced effectively.” “There’s going to be a lot of pushback, and Law. The budget will be submitted to the this isn’t over yet because the plan requires leg- legislature, which must pass it by June 15. islation,” said Todd Baker, senior fellow at the At the state level, the new California COMMUNITY BANKING Richman Center for Business, Law and Public consumer bureau may be even more powerful Policy at Columbia University. “I see expanded than the federal CFPB. For example, California UDAAP authority as likely to happen. This is not may give the new agency authority to examine Banks try an unusual situation for California from a regu- firms’ compliance with the Military Lending latory standpoint in taking an aggressive role in Act. That has become a point of contention pooling trying to drive policy at the national level.” because CFPB Director Kathy Kraninger claims Jan Lynn Owen, the former DBO commis- the federal agency does not have authority to sioner, who is now a senior adviser at Manatt, examine financial firms for MLA compliance. resources to called the plan “a very credible opportunity.” A California bureau also could go further The budget sets aside $10.2 million for a afield to protect consumers from being harassed help defray financial protection fund and 44 added po- on their cellphones by debt collectors or from sitions at the department, which now has a being harmed by a predatory small business staff of roughly 700 and a $120 million bud- loan, according to testimony in March before AML costs get. Funding would increase to $19.3 million the state Assembly’s Banking and Finance and 90 positions by fiscal 2022-23 to estab- Committee about how expanded powers would By John Reosti lish and administer the California Consumer work. January 12, 2020 Financial Protection law. The department “The devil is in the details,” Vijay Das, national Community banks have been reluctant will be self-funded by fees on newly covered policy director at the California Reinvestment to share resources for Bank Secrecy Act

For up to date and complete coverage go to AmericanBanker.com TUESDAY JANUARY 14, 2020 AMERICANBANKER.COM PAGE 4 compliance more than a year after regulators relatively straightforward process to serve signaled an openness to the practice. as a template for future resource-sharing C-SUITE Only a handful of banks have begun col- agreements. They quickly took note when laborating on BSA and anti-money-launder- regulators issued the Interagency Agreement. ing programs. Still, there are some signs more In November 2018, the NCBA sent a team 11 bankers banks are looking into the practice. to Washington to be briefed on the statement. The Federal Deposit Insurance Corp. has Then it hired a consultant to help develop and disruptors been receiving proposals from banks that are recommendations for sharing services. The interested in working together on BSA and next step will involve a survey of member AML compliance, a spokesman said. And the banks; the results will be used to design a pi- to watch in North Carolina Bankers Association is work- lot program. ing on a framework to help its 80 members. Some mutuals are already sharing resources. 2020 “We’re moving pretty aggressively,” said Warsaw Federal Savings and Loan in Peter Gwaltney, the association’s president Cincinnati and Blue Grass Federal Savings By Alan Kline, Laura Alix, Kevin Wack and CEO, adding that he hopes to have a co- and Loan Association in Paris, Ky., are now Andy Peters, Dean Anason, Jon Prior operative agreement in place later this year. collaborating with First Mutual Holding in and Penny Crosman While it is unclear how much time and Lakewood, Ohio, after both agreed to be January 12, 2020 money banks spend on BSA and AML acquired a by the bigger mutual. The ability In banking circles, the biggest story of compliance, regulatory costs remain a to leverage BSA compliance across a larger 2019 was unquestionably the blockbuster big concern for small banks. Total annual organization played a part in clinching both merger between longtime rivals BB&T and regulatory costs at banks with assets of less deals, said First Mutual Holding President SunTrust Banks. The merger was easily the than $10 billion averaged $4.9 billion from and CEO Tom Fraser. industry’s largest since the mega-mashups of 2014 to 2018, based on data compiled by the “Risk, audit and compliance are some of the early 2000s, creating not just the nation’s Federal Reserve and the Conference of State the areas where we’re achieving significant sixth-largest commercial bank, with roughly Bank Supervisors. savings,” Fraser said. “BSA is part of that.” $470 billion of assets, but also an entirely new Meanwhile, U.S. depository institutions Before the Interagency Statement, mutuals banking brand, Truist Financial. filed nearly 1.3 million suspicious activity re- interested in affiliating with First Mutual Still, the deal was not just about scale. ports in 2018, or nearly double what they filed Holding were reluctant to collaborate on BB&T’s Kelly King and SunTrust’s Bill Rogers a decade earlier, according to the Financial compliance because of the stringent penalties also pitched it as a tech play, promising to Crimes Enforcement Network. for BSA violations, Fraser said. invest a large chunk of the estimated annual While individual financial institutions Elsewhere, banks appear hesitant to em- $1.6 billion in cost savings into difference- are responsible for ensuring full compliance brace BSA resource sharing. making technologies that would allow Truist with BSA-AML regulations, the October “I don’t know that we’ve really seen to better compete with deep-pocketed 2018 Interagency Statement from regulators a change in behavior from the banks,” behemoths like JPMorgan Chase and Bank opened the door to small banks and credit said Thomas Fite, director of Indiana’s of America. In 2020, investors, customers, unions collaborating on a wide range of Department of Financial Institutions. regulators and rival bankers will be watching activities, including training, program testing Still, an effort resembling the NCBA’s ini- King and Rogers closely to see how well they and validation, and policy development. tiative, with multiple participants, has a good manage the integration — and what they may That, in time, could yield bottom-line relief. chance of success, Fite said. have up their sleeves. “There are 5,000 community banks,” Gwalt- “I don’t think the equation is right for Another big story in 2019 was Wells Fargo’s ney said. “Each one is developing [BSA] poli- just two banks; maybe that’s why it hasn’t continued inability to move past the 2016 cies, validating models and doing training. If emerged,” Fite said. sales-practices scandal that has done untold we can work together to do these things collec- “If you had a group of six to eight banks ... damage to the bank’s reputation and cost two tively, we can bring down costs dramatically.” you’d probably get into some efficiencies that CEOs their jobs. In 2020, all eyes will be on Resource sharing could reduce banks’ make sense,” he added. “We really need some its newest CEO, Charlie Scharf, to see if he BSA-AML compliance costs by 30% to 50% banks to come forward and start seeding the can deliver the turnaround his predecessors annually, said James Sills, president and CEO field a little bit.” could not. of the $267 million-asset M&F Bancorp in Others under the microscope this Durham, N.C., and chairman of the NCBA’s year include new CEOs of regional banks shared services committee. Santander, Comerica and KeyCorp, fintech The committee, formed in 2017, initially disruptors with big ambitions in financial focused on core systems collaboration before services and one governor looking to make realizing that various complexities defied good on a campaign promise to create what simple solutions. would be just the second state-owned bank “It didn’t make sense to tackle that in the continental U.S. Here are American two-headed monster,” Sills said. Banker’s leaders to watch in 2020. Sills and Gwaltney were looking for a

For up to date and complete coverage go to AmericanBanker.com TUESDAY JANUARY 14, 2020 AMERICANBANKER.COM PAGE 5

Charlie Scharf, CEO, Wells Fargo billion of low-cost deposits, primarily from said that Truist, now the nation’s sixth-largest Charlie Scharf took the job that no other homeowners’ associations, and roughly $4 commercial bank, presents “very significant big-name candidates seemed to want. Now billion of middle-market commercial loans. financial stability risks” to the banking the pressure is on to deliver the turnaround But, as Alemany herself said in August system, and it’s up to King and Rogers to that his two most recent predecessors could when the deal was announced, the addition prove him wrong. not. of Mutual of Omaha Bank could also make Other CEOs of regional banks will be When Scharf was hired last fall, he said the now $60 billion-asset CIT more attractive watching closely as well. If the integration that his top priority would be to resolve to a potential buyer. goes smoothly, expect them to engage in Wells Fargo’s regulatory issues. Shareholders “We think this transaction makes us actu- merger-of-equals discussions of their own remain antsy about when the Federal Reserve ally more valuable to anyone,” Alemany said with counterparts at rival banks. If it doesn’t, Board’s February 2018 asset cap will be lifted, when asked if the deal would rule out any well, expect them to raid Truist for talent. but the bank is also dealing with several chance of a sale of CIT. “We’re very open to government investigations, including a partners … in the future.” Curt Farmer, chairman and CEO, Co- Department of Justice probe that may soon It’s hard to say where CIT goes from here, merica yield criminal indictments of former senior but given those comments, will anyone be Curt Farmer is starting his first full year as bank executives. surprised of the company sells itself? chairman and CEO of Dallas-based Comerica Scharf’s bigger challenge may be rein- Bank. stilling confidence inside a firm where three Bill Rogers, president and chief oper- He succeeded Ralph Babb as CEO of the years of scandal have diluted the longtime ating officer, and Kelly King, chairman $73 billion-asset bank in April and replaced focus on sales. In his first three months on and CEO, Truist Financial him as chairman on Jan. 1. He is taking over the job, Scharf hired outsiders to serve as Closing the biggest bank merger in 15 at a time when profits could be squeezed by chief operating officer, controller and vice years was the task in 2019. For 2020, the job flat or shrinking net interest margins and chairman of public affairs. Some high-level facing Truist Financial CEO Kelly King and more provisions are needed for its book of holdovers have already announced plans to President Bill Rogers is managing the inte- loans to oil and gas companies. depart. Expect more to follow suit. gration without a major misstep and proving The bank had more than $1.8 billion in Then there is the bank’s uninspiring that it was a good idea to combine. criticized energy loans at the end of the third balance sheet. Revenue has fallen in four of The landmark merger between BB&T, quarter, up from $1.6 billion one year prior. the last seven quarters, and loan balances where King was chairman and CEO, and The main issue facing the bank is a drying have generally been stagnant. Reducing SunTrust Banks, run by Rogers, created the pool of private investment dollars in U.S. costs figures to be a challenge as long as the nation’s sixth-largest bank, with about $470 oil fields, which had buoyed prices lenders company’s regulatory woes continue. In third billion of assets. could get on the land and equipment they quarter of last year, Wells Fargo’s efficiency One important task they will face together is can get back when one of their borrowers ratio ballooned to 69.1%, thanks largely integrating separate information-technology goes through bankruptcy. to a $1.6 billion litigation accrual for sales systems while avoiding widespread outages Farmer said in a recent interview that scandal-related costs. or exposing customers’ personal data to the problem would “work itself out over the Scharf has pledged to keep the company’s hackers. Tech-related struggles are something course of the next couple of quarters” but universal bank model intact — preempting both King and Rogers have faced. BB&T that provisions for this book would remain questions about whether he plans to sell off recently sued a former tech vendor for an elevated for a while. The bank could find -it big pieces of the firm — but he’s otherwise equipment malfunction that led to a 15-hour self a beneficiary of oil prices that have spiked played his cards close to the vest. The public outage. And a former SunTrust employee in in reaction to tension in the Middle East be- may learn more about what he has in mind 2018 illegally accessed 1.5 million customer tween the U.S. and Iran, which could boost on Tuesday, when Wells Fargo releases its accounts and shared the data with a criminal profits for drillers in its home state. first quarterly earnings report since the arriv- third party. Farmer is also optimistic about navigating al of its new CEO. Beyond that, they’ll need to sell the public through the period of low interest rates that on the Truist brand — the name was widely have put a pinch on profits across the indus- Ellen Alemany, chairwoman and CEO, mocked when it was announced in June — try. Comerica has been busy putting in hedg- CIT Group find additional cost savings to meet their es on its portfolio of loans that mostly carry Now that CIT Group has completed its ac- target of cutting expenses by $1.6 billion floating rates as a way to offset some of the quisition of Mutual of Omaha Bank, the big annually and make good on their promise to lost revenue while the Federal Reserve has question on the minds of investors is, what’s use the savings to develop groundbreaking been cutting borrowing costs. next? technologies that will help Truist better Comerica has a firm foothold in two states The deal for the $8.3 billion-asset Mutual compete with behemoths Bank of America, — California and Texas — that many compet- of Omaha was a critical one for Chairwoman JPMorgan Chase and Wells Fargo. itors are eager to break into. Farmer has said and CEO Ellen Alemany in her ongoing Expect government officials to be while Comerica is focused primarily on grow- quest to transform CIT from a commercial monitoring the integration closely. Former ing organically, it could be a potential buyer finance company to a more traditional Federal Deposit Insurance Corp. Chairman if the right deal comes along in those states. commercial bank. The deal added some $4.5 and current director Martin Gruenberg has Comerica has not made an acquisition

For up to date and complete coverage go to AmericanBanker.com TUESDAY JANUARY 14, 2020 AMERICANBANKER.COM PAGE 6 since it bought the $5.1 billion-asset Sterling at stoking the hot stove league of the C-suite When Wennes joined Santander as pres- Bank in Houston in 2011. with periodic — and purportedly calculated ident and CEO of its Boston-based bank in — shake-ups of the bank’s executive ranks July, Santander US CEO Scott Powell hinted Max Levchin, CEO, Affirm that are said to be done in the interest of that the change would position the bank for By any measure, 2019 was a milestone grooming future leaders. new things to come. year for the consumer lender Affirm and its So it was nearly obligatory to put Jennifer Powell left in December to become the founder and CEO Max Levchin. Piepszak — the bank’s chief financial officer chief operating officer at Wells Fargo, and The point-of-sale lender raised some $300 and trending subject of future-CEO chatter Wennes added CEO of the holding company million from venture capital investors, forged — on our 2020 watchlist. Piepszak will be to his responsibilities. a landmark partnership with Walmart, rolled back in the spotlight Tuesday when JPMor- In a recent interview, Wennes said that out a new app that lets consumers create a gan presents fourth-quarter results, her third Santander Bank will launch a new unsecured virtual card that can be used at almost any re- earnings call since becoming CFO last spring. personal loan product early next year, to be tailer, and spun out a new company, Resolve, It felt like Piepszak had suddenly taken the followed later by a national digital deposit that applies Affirm’ pay-over-time consumer lead — sorry, the sports lingo is irresistible gathering effort. It will also focus on growing model for business purchases. — in the race to be Dimon’s heir apparent commercial lending, playing up its European So what can we expect from Levchin in as CEO. She was new to the pack, and she and Latin American connections to appeal to 2020? assumed the job of Marianne Lake, who had companies with international operations. A Silicon Valley luminary dating to his been viewed as (and may still be) a leading Meanwhile, its auto lending unit, days as a co-founder of PayPal, Levchin is contender. It was notable that Piepszak would Santander Consumer, will continue to work said to be looking to raise another $1.5 bil- report to Dimon and Lake to Chief Operating with the bank to originate prime indirect lion through a combination of debt and equi- Officer Gordon Smith. auto loans. Santander Consumer also has a ty — funds Affirm would use to turbocharge To be sure, it’s possible the crowd the Fi- new president and CEO, Mahesh Aditya, and its growth. The San Francisco-based firm nancial Times dubbed “JPMorgan Kremlin- a new agreement preserving its preferred already offers installment loans at checkout, ologists” misread the signals. Lake could still lender relationship with Fiat Chrysler. online and in stores, for some 3,000 mer- have a shot at the top spot. It had long been Santander still has some challenges ahead, chants and such a huge influx of funds would speculated that she would have to take a turn though. The company has resolved many reg- give it the resources to move even deeper into running a business line, and, indeed, she was ulatory matters in recent years but still has consumer lending. named CEO of the consumer lending division. one more Federal Reserve order to settle. As a Investors, which include some of the big- And there are other options: Executives like midsize regional lender, it will face stiff com- gest names in venture capital, will also be Smith or his co-COO Daniel Pinto could step petition not only from bigger banks, but also watching Levchin closely for any indications in in a pinch, and JPMorgan has plenty of up- from fintechs, Wennes said. He added that that he might take Affirm public. and-comers who could be added to the mix. the company will also be challenged by the Affirm positions its installment loans as That said, Piepszak has earned a lot of brass interest rate environment. safer alternatives to credit cards because in more than 25 years at JPMorgan Chase. Yet Wennes was still upbeat. He said its they offer clear pricing and no surprise fees. She became CFO of the mortgage division in relationship with its Madrid-based parent Levchin has frequently criticized the credit 2011. Later she was CEO of business banking, should give it a competitive edge with both card industry for allowing interest on balances where she established a partnership with the tech spending and international business to compound and trapping borrowers in debt. online lender OnDeck. In 2017 she became clients. And his outlook for the broader As Affirm grows, perhaps the biggest chal- the head of cards services, where she oversaw economy is generally positive. lenge it faces is funding future loans. It cur- the launch of the Amazon Prime credit card “I’m optimistic for 2020,” he said. “We’re rently originates loans in partnership with and struck new card partnerships or renewed not planning for robust growth, but we’re also Cross River Bank in Fort Lee, N.J., but the existing ones with big-name retailers. She is not anticipating we’re going to see recession- bank quickly sells those loans back to Affirm, famous for emails that carry the tagline #GSD, ary signals in the near future.” which it then keeps on its balance sheet. which stands for “getting [expletive] done.” One way Affirm can free up capital is by se- Piepszak’s evolving role, and those of her col- Chris Gorman, incoming chairman and curitizing loans and selling them to investors, leagues, bear observation in the coming year. CEO, KeyCorp and in 2020 it could be looking to do just that. Meanwhile — as Dimon himself has Over the course of his 21-year career at On its website, the lender is currently listing warned — other banks could attempt to hire Cleveland-based KeyCorp, Chris Gorman has multiple job openings for capital markets pro- away JPMorgan stars. And keep in mind that run the capital markets and corporate bank- fessionals with experience in securitization. Dimon has said he plans to stay on the job ing units, overseen the integration of Key’s till 2023, so there could be multiple executive 2016 acquisition of First Niagara Financial Jennifer Piepszak, chief financial offi- shuffles to come. Group, and served as president of banking, a cer, JPMorgan Chase role in which he effectively had responsibility Admit it — we’re all moths to the flame Tim Wennes, CEO, Santander US for all revenue-producing business lines. when it comes to speculating about succes- The newly minted CEO of Santander’s U.S. So it hardly came as a surprise to investors sion planning at JPMorgan Chase. business should have an interesting year in when the $145 billion-asset Key announced Jamie Dimon & Co. are especially skilled 2020. in September that Gorman, 58, would take

For up to date and complete coverage go to AmericanBanker.com TUESDAY JANUARY 14, 2020 AMERICANBANKER.COM PAGE 7 over as chairman and CEO when Beth Opening an account on its basic banking In California, municipalities now have a Mooney retires later this year after nine years app (which offers a federally insured checking framework to create public banks thanks to at the helm. account and a Visa debit card through Axos a bill Gov. Gavin Newsom signed into law in Gorman will officially succeed Mooney on Bank) can take as little as five minutes. It October. The law initially caps the number of May 1 and the consensus in the investment offers rewards from popular retailers like public banks at 10 statewide and limits the community is that he won’t undertake any the scooter rental company Lime, the online state to issuing two public banking licenses major changes — at least not at the outset. travel platform Booking.com and the skincare per year. Still, 2020 is expected to be a challenging year subscription service Curology. Meanwhile, activists in New York, New for regional banks as they contend with what N26 offers customers access to their Mexico, Pennsylvania and several other could be soft loan demand, compressed net paychecks two days in advance. It lets them states are pushing for legislation. And Ste- interest margins and intense competition set up subaccounts for savings goals calls phen Smith, a West Virginia Democrat run- from nonbank players, and investors will be “Spaces.” A customer might have a Space for ning for governor, is endorsing a public bank watching Gorman to see how he navigates buying a laptop and a Space for a future trip as part of a broader rural revitalization plan. this landscape. to Bermuda. He also has pretty big shoes to fill. Under Kopp, who has worked at Goldman Sachs, Mooney, Key’s assets climbed by more than Lazard and Morgan Stanley, has said N26 SMALL BUSINESS LENDING 60%, thanks largely to the First Niagara differentiates itself from traditional rivals acquisition, and its stock price, while still with an understanding of the millennial trading below pre-crisis levels, has more generation and an ability to build trust and GOP than doubled. Mooney has also been, in offer simplicity. the words of lead director Sandy Cutler, a “In trust barometers, banks rank second to lawmaker’s “transformational” leader whom he credits last on the list of all industries, right above to- with “building a strong culture that attracts bacco,” Kopp said in an interview a year ago. and retains talent … delivering value for “There is this fundamental lack of trust.” bill would our shareholders while maintaining a client focus [and] and creating a blueprint in how to Gov. Phil Murphy, New Jersey repeal small- effectively invest in our communities.” Bankers will want to keep an eye on New Gorman, for his part, has said that he be- Jersey Gov. Phil Murphy, who campaigned on lieves Key has the right strategy in place to a pledge for a public bank and hasn’t backed business loan effectively compete with other large and off in the two years since. regional banks. Asked in December if Key Public banks hold municipal tax dollars rules might pursue a merger of equals — a la BB&T and fee revenue as deposits and lend that and SunTrust — to gain scale, he said: “The money to small businesses, student borrowers By Kevin Wack degree of difficulty in bank M&A, I think, is and municipalities for affordable housing January 10, 2020 sometimes underestimated.” and infrastructure projects. Currently, the A Republican congressman introduced U.S. has just two public banks — the Bank legislation Friday to repeal a legal requirement Nic Kopp, U.S. CEO, N26 of North Dakota and the Territorial Bank — nine years old but yet to be implemented This year could be a turning point for the of American Samoa — but recent progress — that aims to address discrimination in German challenger bank N26, which is trying in New Jersey could provide momentum to small-business lending. to make it big in the United States. Its aim is efforts elsewhere. The bill from Rep. Roger Williams, R-Texas, ambitious: outdo existing American neo- Supporters often stress that public banks has the support of the Consumer Bankers As- banks like Chime and Varo Money as well would work with — not against — community sociation and the Independent Community as fellow European challengers Revolut and banks and credit unions, but they still face Bankers of America. While it is unlikely to be Monzo, which have been preparing their own stiff opposition from state banking groups passed by the Democratic-controlled House U.S. launches. and the American Bankers Association. of Representatives, it lays down a marker in U.S. CEO Nic Kopp brings a millennial Specifically, bankers will want to monitor opposition to the 2010 measure. sensibility, a knack for partnering with trendy developments out of New Jersey’s new That provision, which was part of the retailers and a large marketing budget to this Public Bank Implementation Board. The Dodd-Frank Act, calls for the collection of grand experiment. first real step toward a public bank in the data that could be used to identify lending The digital-only N26 formally debuted in state was Murphy’s creation of that task force discrimination — similar to the longstanding this country in August with a sassy marketing via executive order in November. Later this requirement that residential mortgage campaign. Billboards plastered on New York year, the 14-member board should deliver lenders collect and report information about City taxis, subways and commuter trains and a plan for making a public bank happen, the race and gender of applicants. buses said things like “Finally, banking the addressing capitalization needs, governance The Consumer Financial Protection Bu- way it should be — no sneaky hidden fees, no and operational structure. reau has yet to write rules that would im- maintenance charges, no minimum account The details of the plan could be copied in plement the 2010 mandate. The agency still balance, and no foreign transaction fees.” other states. needs to make important decisions such

For up to date and complete coverage go to AmericanBanker.com TUESDAY JANUARY 14, 2020 AMERICANBANKER.COM PAGE 8 as how much data will be collected, about will quickly erode as long as banks continue Definitely. Banks today are struggling to which products and from which companies. to attempt “piecemeal software develop- replace their tech stacks as they are now At a CFPB forum in November, financial ment” in their current systems. incredibly complex, due to years of piecemeal industry representatives who spoke did not software development on antiquated call for the provision’s repeal. In fact, some Facing Big Tech platforms. This is further complicated by of them said that the long-awaited rules can Trying to outmaneuver Big Tech in appli- the fact that software programming talent help protect against discrimination and shine cation development is an uphill battle for developing and managing these platforms a light on unsavory practices in the market for banks, he says, as the technology pros are are out of the workforce and difficult to small-business credit. simply better and faster at it. find. Also, the emergence of social, mobile- The bill introduced Friday would stop the Oracle, which sells an enterprise core plat- centric thinking in product design and CFPB from proceeding with the rulemaking form to financial institutions, has struck a mainstreaming of big data, machine learning process. Its supporters argue that the da- number of software deals with banks around and artificial intelligence as core principles in ta-collection rules would be too burdensome the world. It faces fierce competition from banking platforms make it more difficult for for financial institutions. several vendors including FIS and Fiserv. banks to survive on these platforms. “The result of these new requirements In an interview with American Banker, While a rip-and-replace model with a would not have been better information, Singh discusses where banks should focus long-drawn-out transformation program is but less credit for small businesses on Main their development efforts, how they can becoming less of an option, we see a pro- Street,” Richard Hunt, president and CEO of upgrade their technology more efficiently gressive approach could work. As with to- the Consumer Bankers Association, said in and the best way to break down silos in data day’s componentized, open and micros- the press release announcing the legislation. sharing. ervices-based architecture and movement The idea of repealing the rules drew a re- The following conversation has been edit- toward the cloud, banks can undertake a fast buke from Luz Urrutia, the CEO of a nonprofit ed for length and clarity. outcome-driven transformation of their tech small-business lender in California and a for- stacks and core banking platforms. With this mer member of the CFPB’s Consumer Advi- What’s your take on the recent emer- approach, banks can choose the business sory Board. She said that female and minority gence of Big Tech, i.e. Google and oth- area they want to transform, either based on business owners who are either equally qual- ers, in the banking space with their pi- revenue and profitability priorities, or new ified or more qualified than other applicants lot projects? How do banks respond to business models they want to bring, such as are denied loans at higher rates. the initiatives by some of your Silicon digital banking. “America cannot be a nation that purports Valley peers? Prime examples from our customer base to venerate small businesses, while at the SONNY SINGH: What’s occurring in bank- are Westpac in Australia, which is under- same time ignoring the inequities they face ing among Big Tech is a natural evolution. taking a homeownership-lending-focused accessing capital,” Urrutia said in an email. Companies are always looking for ways to ex- transformation, and KeyBank in the U.S., pand their offerings and evolve their business which has undertaken a transformation of through disrupting incumbents. Big Tech is its digital experience followed by a personal CORE SYSTEMS always focused on further monetizing their lending transformation. data relationships with customers, and bank- ing is the next frontier after retail, media and Alternative core providers are break- Banks best travel. ing into the U.S. market from Europe. The real question is, how will Big Tech There are banking industry firms in- Big Tech on manage the regulatory piece of what’s re- vesting in core provider startups. quired? How do banks who are sitting on this We’ve heard a lot of unhappiness mound of data make better use of it to retain among smaller financial institutions trust, but not relationships? Right now, banks still have the about their service. Can you discuss edge, and they also have the trust factor that how the core banking industry can ad- much else comes with being a bank due to regulation. dress this issue? But banks need to master data in order Core banking is a mission-critical applica- By Suleman Din to hold this lead, build a collaborative tion, and it requires robust product develop- January 10, 2020 ecosystem to take up and deploy innovation ment, testing and implementation method- As some of Silicon Valley’s biggest faster, and drive experience as a critical ology to be successful. While like any other companies launch retail banking products principle in product innovation — all these industry where new and disruptive thinking and projects, banks should acknowledge are done by Big Techs and fintechs very well is welcome, banks need to choose their core where they lag in the digital-first race, says in the current business models. banking technology partner based on R&D in- Sonny Singh, senior vice president and vestment that the partner brings to the table general manager of the financial services We hear so much about legacy technol- currently and for future product innovation. global business unit at Oracle. ogy holding back bank innovation. Are Banks maintain an edge over Big Tech in we at a point where tech stacks are no Customers in financial services are de- terms of customer trust, Singh says, but that longer capable of being upgraded? manding high-touch service on demand,

For up to date and complete coverage go to AmericanBanker.com TUESDAY JANUARY 14, 2020 AMERICANBANKER.COM PAGE 9 especially for certain important trans- your staff more productive. Banks can use The $472 million-asset Security said in actions like investments. Can financial machine learning and robotic process auto- a press release Friday that it plans to buy institutions do both in a digital-first en- mation to fetch reports from disparate sourc- the parent of the $99 million-asset Farmers vironment? es, reducing false positives in transaction & Merchants Bank in mid-2020. It did not It is possible to do both, but a bank has monitoring, giving anti-money-laundering disclose the price. to prioritize where it wants to deliver high- investigators more time to focus on analysis “This merger is a continuation of our strate- touch, on-demand services on its own versus instead of gathering data information. Inter- gy to expand our geographic footprint in com- segments where it can leverage technology estingly, we are seeing that banks are using mon or contiguous markets with long-term innovation to deliver more high-volume but this to increase the overall effectiveness of growth potential,” Barry McIntosh, Security’s less personalized services. their compliance departments at lower costs. president and CEO, said in the release. A broad rule could be to keep high-reve- Farmers & Merchants, founded in 1895, nue-generating, high-profitability areas with- One digital-advice firm at our recent has branches in three Tennessee markets. Se- in the bank and its owned channels, such as event said it will roll out the ability for curity will have $500 million in deposits and relationship management for high-net-worth its users to get a one-click mortgage. $395 million in loans when the deal closes. wealth management. For more volume-driv- They are building these capabilities en opportunities such as the mass-affluent from scratch. Can banks match this? segment, it could deploy a robo-advisory ca- The CEO said that the best engineers DE NOVO INSTITUTIONS pability or even externalize its system through don’t want to work at banks. open application programming interfaces There is a popular view that banks are and use third-party fintech innovation. technology companies with a banking li- Bank planned However, automation and a data-driven cense, and it could be true for large banks approach is needed for both, but segmenta- like JPMorgan, BBVA and Citi. They could in nation’s tion will help retain and acquire customers at attract engineers, but that won’t be the case the same time while driving profitability. for medium to smaller banks. As the best engineers tend to move quickly and want to capital Many executives talk about horizontal have a diverse portfolio across industries, roles and breaking down silos when it it will be difficult for these banks to win the secures FDIC comes to data sharing and use. What is talent war. Digital-first application develop- the reality for institutions to achieve ment needs to come from agile development, this? What’s worked best to ensure this which is best done by financial technology approval collaboration takes form? providers with strong expertise in cloud and Banks need to take a foundational ap- modern architecture. Banks should not focus By Jim Dobbs proach to how they turn data into an asset on developing a core competency here but January 10, 2020 to use across functions. A core investment concentrate on product innovation and cus- The nation’s capital could soon have a new toward this is a common data model and an- tomer profitability and financial bank. alytical applications that source, curate and Organizers of Founders Bank in Washing- transform data for risk and finance data from ton said in a press release Thursday that they multiple sources into a common standard for COMMUNITY BANKING received conditional approval from the Fed- use across functions for insight and action. eral Deposit Insurance Corp. for deposit in- With this approach, data can be used not surance. The group said it is in the process of only for specific immediate purposes like Security Bank raising $25 million to $30 million. regulatory reporting and risk, but also reused The group plans to open the bank in mid- to analyze profitability and decide next-best in Tennessee 2020. action by different offices within the bank’s “We greatly appreciated the transparency chief financial, marketing, compliance and and open communication that we have had revenue, cutting across silos. to buy with the FDIC throughout the application and approval process,” Martin McCarthy, A recent Accenture report suggested neighboring Founders’ proposed president and CEO, said over 50% of bank staff roles can be au- in the release. “This approval allows us to fo- tomated. What are some of the emerg- cus on the next phase of completing our cap- ing tools that Oracle sees playing a role lender ital raise and building a strong community of in that transformation? employees, customers and stakeholders.” There are a number of emerging tools, By Paul Davis The group largely consists of former exec- we see. First among them is the broad set of January 13, 2020 utives at Bank of Georgetown in Washington, machine learning and robotic process auto- Security Bank and Trust in Paris, Tenn., which was sold in 2016 to United Bancshares. mation tools. For example, within financial has agreed to buy F&M Bancshares in Dyer, Organizers plan to open a branch in Wash- compliance, automation is a way to make Tenn. ington’s Friendship Heights neighborhood.

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Founders would become the first Washing- of Koo’s stature off the trading floor while it system and fintechs are at the forefront of ton-chartered bank in 15 years. looks into the matter is indicative of the se- evolving challenges in 2020. The group also said that Karen Grau has riousness with which banks are grappling Here are 10 points on where fintech is been recruited as chief financial officer for with the profusion of new communication headed next. the proposed bank. She has 35 years of bank- platforms. ing experience, including stints as CFO at Wall Street banks have a complicated re- Rebundling will follow the great un- several Washington-area banks. lationship with WhatsApp. Messages on the bundling “The opportunity to be a part of a new service are encrypted from start to finish, and During the last decade, startups have community bank is one I am intimately can’t easily be monitored by a compliance unbundled financial services for easy delivery familiar with, having done it twice before in department, a problem for firms that need to through mobile apps and direct-to-customer my career,” Grau said in the release “Seeing make sure their employees aren’t engaging in acquisition models. Meanwhile, banks have the energy, passion, and expertise that the illegal activity like fraud or insider trading. mostly been caught flat-footed with outdated organizing team brings to this bank made Banks carefully comb through their one-size-fits-all offerings. joining them an easy decision.” employees’ conversations through older Well-funded, single-product disruptors forms of communication, including phone have reached significant scale in many calls, emails and instant messages, to make markets. As new products and services SOCIAL MEDIA sure they aren’t breaking rules. They hang are presented, these startups will expand onto those records to refer to if accusations into modern money hubs. Their significant of bad behavior emerge months or even years financial benefits and actionable financial JPMorgan after the fact. advice will secure stickier and higher-revenue Many firms are unsure of how to handle customer relationships. puts senior WhatsApp. Employees often use it for talking Incumbents should take note: It’s time to to friends and coordinating their social lives, cut across product lines and resell services which makes it hard for banks to outlaw from industry peers (including startups), or credit trader altogether. develop more of their own, to create cohesive Koo, who trades corporate bonds and finance experiences for customers. on leave over credit derivatives, has been at JPMorgan since 2002, according to industry records. E-commerce battles are brewing Known as one of the bank’s main traders of Lenders and payment processors globally WhatsApp use credit-default swaps tied to individual com- will continue their quests to democratize panies, Koo had been getting an expanded e-commerce and prevent it from becoming By Bloomberg News mandate. concentrated on a handful of powerful January 13, 2020 He got a bigger role last year under invest- platforms. WhatsApp may be a great way to commu- ment-grade trading head Nicholas Adragna, The fast-growing popularity of video- nicate with friends, but when Wall Streeters and has also had oversight of fast-growing cor- based mobile platforms will prompt the touch it, their firms get very nervous. ners of the market such as portfolio trading. launch of more QVC- and HSN-like services One of JPMorgan Chase’s most senior cred- across emerging markets, giving local sellers it traders, Edward Koo, has become the latest access to sizable markets that were previously member of the industry swept up in concern BANKTHINK unreachable. over the messaging app. The veteran trader, Watch Asia for leadership: free from Am- who has spent almost 20 years at the firm, was azon’s dominance. Large national markets placed on leave as the bank reviews whether 10 fintech with rising underserved populations and he broke its policies by using WhatsApp group rapid adoption of smartphones present mo- chats with colleagues, according to people forecasts for bile commerce opportunities. with knowledge of the matter. The discussions included market chatter, Big tech is moving into fintech and the probe so far hasn’t indicated any im- the ‘20s Big tech has data and distribution locked proper activity, according to a person familiar in key elements for the launch of new busi- with the investigation. The bank hasn’t ruled By Ryan Gilbert nesses. To boost future revenues, the tech out taking action against other members of January 13, 2020 giants will further expand their payments the group, one of the people said. The past decade has reshaped the finan- businesses. A representative for JPMorgan declined cial system by introducing the first wave of Boston Consulting Group estimates that to comment, and Koo didn’t respond to re- emerging financial technology companies. $1 trillion payments in revenue stands to be quests for comment. Many of these companies are now facing won by big tech through 2027. Bank accounts The review may be concluded with no a second phase of maturity, new competi- and other core banking services could follow further action being taken, the people said. tors and increased demand from consumers. once consumers overcome fears about a lack Still, JPMorgan’s decision to force someone Because of this, both the traditional banking of privacy.

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Once trust is established, machine learn- Look for relief in high customer-acqui- financial services infrastructure, matched by ing and artificial intelligence assets devel- sition costs significant investment and strong regulatory oped by tech leaders could change how The Achilles’ heel of many startups is the support. businesses and personal financial lives func- high cost of acquisition of new customers. tion. Process automation, real-time insights Fintech innovators have an opportunity to It’s clicks, not bricks and safe online storage will lead to cost sav- pursue new “sell-through” and “sell-with” In the past decade, leading banks navigat- ings, efficiencies and better decisions for all strategies, thanks to recent success stories at ed a journey: from being brick-and-mortar types of consumers. Alexa, Siri and other big tech. institutions to becoming digital banks. That’s voice-powered peers could be the future CFO New high-growth services do not have to where most cast anchor. and financial adviser. be delivered as standalone offerings; it can Today, these forward-looking banks are instead become part of the native user inter- striving to become digital companies and are As neobanks become incumbents, face of other products, embedded as features enjoying the benefits of having the majority more will launch of platforms that already have direct custom- of their customers engaging in digital-only Millions of global customers have adopted er relationships. channels. new digital-only “challenger banks” as their Fintech is poised to become a new layer The lines in the battle for wallet share and bank of choice. Remarkably, these neobanks on a technology stack that’s built on top of relationship banking have clearly been re- are not banks, strictly speaking, and rely on the internet, cloud and mobile technologies. drawn. Customer acquisition and retention a handful of licensed institutions to conduct Keep an eye on the sharing economy: through digital channels in a mobile-app business. Decentralized asset ownership and strong world is the future of financial services. Neobanks have successfully won customer technology make this fertile ground to launch relationships away from the traditional bank- new models. Don’t forget the regulators ing sector. Given their size and success, they The success of fintech is largely due to the are unlikely to fade away anytime soon. The U.S. payments market is begging to tacit approval of hospitable regulators that The banking industry needs to stop treat- be disrupted have allowed unlicensed entrepreneurs to re- ing these new participants like underfund- If any payments market has an expired think and rebuild financial services, enabled ed, unproven upstarts and instead embrace “disrupt by” date, it’s the U.S. This huge mar- by advances in technology. them as peers. Success begets success. ket is lagging behind global competitors, and As the challengers become incumbents, Many more neobanks will launch in un- processors experience its inefficiencies every regulators will increase their oversight and derserved markets and sectors globally. Even day. Most electronic payments aren’t really enforcement activities. It’s a welcome sign the saturated U.S. and Western European “real time,” and cash still isn’t dead. Politics that fintech has grown up. markets are ripe for verticalized challengers and practicality are keeping cash alive. Privacy and competition will be top of that will out-hustle incumbents. Small busi- Expect that retail environments will find a mind for global regulators.The regulatory ness, medical and legal professionals, new happy balance between checkout-free shop- agenda is packed for the foreseeable future: homebuyers and college students are huge ping and cash-preferred customers. Special- whether it’s the dominance of big tech; the market segments ripe for the taking. ized locations like grocery chains, airport launch of new global cryptocurrencies; or the retail stores and sports stadiums will deploy entry of nonbanks into the banking system. Fintechs are facing an Amazon-like mo- checkout-free convenience options. However, for those in the U.S., the multi- ment Despite criticism from domestic competi- state regulatory framework will be an imped- Open data, open protocols and modern tors, the Federal Reserve’s planned real-time iment to real progress, unless well-funded infrastructure platforms have thrust the fi- payments network by 2024 gives hope that challengers deploy legal strategies in support nancial services sector into an “Amazon Web the U.S. market will catch up with other de- of technology strategies. Services moment” where it’s cheaper, faster veloped economies. This will be a massive Regulators are rapidly adopting new data and more reliable than ever before to launch game changer for all transactions. tools and systems as they monitor their in- new fintech products or services. dustries and enforce regulations. Fast-moving innovators will continue to Blockchain is going institutional attack the most profitable elements of finan- Over the past five years, the financial ser- Ryan Gilbert is a general partner with Pro- cial services value chains and gradually un- vices incumbents who initially derided the pel Venture Partners. seat incumbents — from typical sectors such promise of the blockchain have been quietly as payments, savings and credit, to adjacent collaborating and securing IP and technolo- sectors such as insurance and real estate. gy leadership in this broader digital-ledger The handful of licensed financial insti- category, with a focus on solving “real” finan- tutions that supported the fintech industry cial services problems. This is still in its early through innovative partnership strategies stages. will become more active in seeking equi- As the discussion moves away from the ty-based upsides in the unicorns they once price of a digital asset to the opportunities helped grow. that a public digital ledger represents, these innovations will become critical parts of the

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revealed the alleged fraud through an analysis M&A SECURITIES LAW of VRDO interest rate resets over several years, which he claims shows that the banks “bucketed” the debt and reset the rates in HSBC eyes Edelweiss groups in contradiction to their contractual obligation to set them at the lowest rates sale of its appeals bank possible. As a whistleblower, Rosenberg stands to reap a substantial windfall for himself, French retail victory in potentially millions of dollars, if the lawsuits recover money for issuers. business Massachusetts Massachusetts Superior Court Justice Mitchell Kaplan decided July 23 that the By Bloomberg News public disclosure bar applies to Rosenberg’s January 10, 2020 VRDO case allegations, and dismissed the suit. HSBC Holdings has kicked off the sale of “The allegations in the complaint reference its French retail operations, part of a push by By Kyle Glazier substantially the same transactions publicly interim Chief Executive Officer Noel Quinn to January 10, 2020 disclosed in these sources, and they were cut costs at Europe’s largest lender by assets, The municipal advisor accusing Wall obviously disclosed before the relator filed people with knowledge of the matter said. Street banks of widespread fraud in the vari- this action,” Kaplan wrote in his ruling, noting The bank has sent out an overview of the able-rate market has asked a Massachusetts that the rates were disclosed on EMMA and business to potential buyers, the people said, appeals court to overturn a 2019 decision in elsewhere. asking not to be identified as the information the banks’ favor. “While it may be true that the relator’s is private. HSBC is gauging interest from pos- Johan Rosenberg filed that appeal with the forensic analysis is unique to him and sible suitors including rival French lenders Commonwealth of Massachusetts Appeals has caused him to reach certain opinions La Banque Postale, Credit Agricole, Credit Court Jan. 9, asking that a lower court decision concerning how the defendants set the Mutuel, Milleis Banque and BNP Paribas, the dismissing his whistleblower lawsuit on be- interest rates, the relator does not dispute people said. half of the state be reversed. That lower court that his analysis is performed on publicly It has also reached out to potential pri- found in July that Rosenberg’s lawsuit was available information.” vate-equity buyers including Apollo Global blocked by the public disclosure bar, a legal Rosenberg’s attorneys argues that the Management Inc. and Cerberus Capital Man- standard that exists to prevent whistleblowers Superior Court made an “error of law” agement LP, according to the people. HSBC is from filing lawsuits supported by information in conflating the “independent” inquiry working with Lazard on the sale, the people that was already known to the public. under original source with the “substantial said. But Rosenberg’s legal team told the similarity” test for whether there is a public Any buyer would gain HSBC’s deposit base appeals court that the lower court erred in disclosure at all. in France as well as about 230 retail branches. qualifying information disclosed on EMMA “In sum, had it not been for relator’s The move follows an exit by competitor Bar- as a public disclosure for purposes of the substantial efforts, defendants’ fraud would clays, which sold its French retail and wealth disclosure bar, stating that Rosenberg has have continued unabated,” the appeal management business in 2017 to private-eq- “knowledge that is independent of and filing states. “Because relator’s forensic uity firm AnaCap Financial Partners. materially adds to the publicly disclosed investigation was independent of and The process is at an early stage, and allegations or transactions,” and that the materially added to publicly disclosed there’s no certainty on who will proceed to whistleblower action would not be possible information, he qualifies an original source submit bids for the business, the people said. based on EMMA and other public disclosures exempt from the public disclosure bar.” Representatives for Apollo, Banque Postale, alone. The appeals court typically sits in panels of BNP, Cerberus, Credit Agricole, HSBC and Rosenberg’s lawsuits, which have also three justices. q Milleis Banque declined to comment. Credit been unsealed in Illinois, California, and Mutuel and Lazard didn’t immediately New York, accuse many of the nation’s largest © 2020 American Banker and SourceMedia, Inc. respond to requests for comment. banks of conspiring with each other to keep All rights reserved. HSBC’s planned sale of the French retail variable rate demand obligation (VRDO) bank could take 4,000 to 8,000 workers off its interest rates high so that investors would payroll, a person with knowledge of the mat- not exercise their rights to tender the VRDOs ter said in October. The lender is also plan- back to the banks serving as remarketing ning to partially exit stock trading in other agents, thus allowing the banks to collect fees Western markets including Germany, U.S. for serving RMAs and for providing letter of and the U.K., Bloomberg News had reported. credit services without having to actually remarket the bonds. Rosenberg’s complaints said that he

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