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Scam at Wells aggravated by arbitration clauses, say senators; Stumpf may walk away with $74M regardless


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Commercial Banking: June 22nd Edition

Scam at Wells aggravated by arbitration clauses, say senators; Stumpf may walk away with $74M regardless

Anotherday, another lawsuit. Two ex-WellsFargo & Co. employees want at least $2.6billionfor current and former bankers who were demoted, terminated or made to resign inconnection to not meeting impossible quotas. Their suit claims the bank coachedemployees to employ illegal tactics and promoted those that implemented them, Reutersand Bloomberg News report.

That'snot Wells' only new problem. More shareholders are calling for changes. CtW InvestmentGroup wants two new directors,while New York City Comptroller Scott Stringer has joined the call for clawbacks,according to The Wall Street Journal.The bank is said to be in the process of considering what it can do about compensation— reportedly hiring Shearman & Sterling for counsel on clawing back payfrom CEO John Stumpf, COO Tim Sloan and former community banking head Carrie Tolstedt.

There'salso another letter from lawmakers, this time about the use of forced arbitrationclauses. It argues that the creation of fake accounts lasted five years largelybecause the customers who tried to sue in open court were sent into closed-doorarbitration instead. It asked how many complaints had already been filed beforethe issue became public and who decided on the legal strategy employed in dealingwith the complaints. The letter was signed by Sens. Sherrod Brown, Patrick Leahy,Elizabeth Warren, Dick Durbin, Al Franken and Richard Blumenthal.

But here'sa point made by MarketWatch and research firm Equilar: Even if CEO John Stumpf wereterminated for cause at this point, he would still walk away with almost $74million in stock, based on Wells' Sept. 22 closing price.

In more bankingnews:

Some75 Goldman Sachs Group Inc.investment banking posts in Hong Kong, Singapore and China may get . Bank of America Corp. is also letting i-bankers goin Hong Kong, Singapore and Japan, say sources for Reuters. The total count hasyet to be finalized, but even top dealmakers are expected to cut.

Meanwhile,an internal debate at BofA about reputationalrisk took so long the bank ended up forfeiting advisory work, Bloomberg reports.The potential client was Amorim Energia BV, which has links to a controversial billionaire.

Mulberry, Ark.-based AlliedBank has failed.Its deposits and essentially all of its assets were bought by Today's Bank.

Veritec Inc., which offers prepaid debit cards, banking appsand payment systems, has made a nonbinding offer to acquire Polson, Mont.-based Flathead Lake BanCorp. Inc. for $3.2million — $320,000 when the deal closes and the balance within three years.

In NewOrleans, "an abundance of caution" is why First NBC Bank Holding Co. is again delaying a couple of regulatory filings. The bank expectsto receive a written notification from Nasdaq that its common stock will be subjectto delisting.

Regulators'concerns about asset managers' abilityto handle huge redemptions is seeing the firms increase the amounts they can borrowfrom banks. The Financial Times reportsVanguard Group Inc. hasraised its credit lineby $200 million to $3 billion and that Franklin Templeton's is now at $2 billion.

In the specialtylender scene:

A bundle of loanDepotInc. loans are already seeing lossesof up to 4.97% in total, triggering a provision to send incoming cash only to high-prioritybondholders, according to Bloomberg data.

The New York Department of Financial Services is now lookinginto Caliber Home Loans Inc.'spractices when it comes to acquired distressedmortgages and foreclosures, as well as nonprime mortgage origination. So farthe regulator has only asked for documents, says a source for The New York Times' DealBook.

More regulatory news:

CFTC Commissioner Sharon Bowen gave a speech to internationalmarket authorities on the agency's coming rules. One on position limits,which will contain hedge exceptions, is expected to be finalized in a few months.The CFTC is also working on testing requirements — five types for cybersecurityand a rule to force designated contract markets to provide testing environmentsfor algorithms. Bowen also touched on the issue of corporate governance, sayingindependent directors sitting on audit and compensation committees should have meaningfulbut fixed tenures.

SIFMA,American Bankers Association, the Institute of International Bankers and The ClearingHouse have reacted to the Fed's merchantbanking proposal: "It is both inappropriate and unfortunate that[the Fed] has proposed regulatory changes that are based upon wholly theoreticaland unsubstantiatedconcerns … Furthermore, the proposal ignores the core tenet of American corporatelaw, and is inconsistent with the Federal Reserve's and other regulators' historicalviews in this area."

Lastly,Gov. Daniel Tarullo will give a speech later today, titled "Next steps in theevolution of stress testing."

In other parts of the world

Asia-Pacific:Pakistan keeps policy rate steady;Goldman Sachs cuts jobs in Asia

Europe:Kerviel's penalty cut; HSBC successionplanning; no state help for Deutsche

MiddleEast & Africa: Algeria's privatizationpush; Ghana's M&A drive

The day ahead

Earlymorning futures indicators pointed to a lower opening for the U.S. market.

In Asia,the Hang Seng fell 1.56% to 23,317.92, while the Nikkei 225 declined by 1.25% to16,544.56.

In Europe,around midday, the FTSE 100 was down 1.23% to 6,824.25 and the Euronext 100 0.68%to 874.99.

On the macro front

Thenew home sales report and the Dallas Fed's manufacturing survey are due out today.

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