Banking

ECB warns banks on complacency; Commerzbank wields the ax

Receiving Wide Coverage …

Willful ignorance The European Central Bank Thursday “effectively warned eurozone banks to clean up their acts, saying that many are complacent about losses they may suffer from a surge in problem loans caused by the pandemic,” the New York Times reported. “The central bank also said that top managers at many lenders were not doing a good job of overseeing their operations and that many banks lacked a clear plan to address chronically weak profits.”

Andrea Enria, the head of the ECB’s bank supervision arm, “said there was evidence that commercial banks are deliberately ignoring signs that problem loans could spike once emergency measures expire. He pointed to rules that allow companies and individuals to delay loan repayments.”

Enria said banks under his supervision “are setting aside less money to cover for loan losses than peers in other countries, including the U.S.,” the Wall Street Journal said. “He added that the provisions are below levels reached during the financial crisis and short of the levels models suggest are required.”

“He expects the impact of renewed lockdowns will be reflected in banks’ fourth-quarter results and through 2021. Several eurozone banks are due to report their annual results next week.” Wall Street Journal

Baffling Bafin

Germany’s financial markets regulator said Thursday that “it filed a criminal complaint with prosecutors against one of its employees over suspected insider trading linked to Wirecard, raising fresh questions about the supervisor’s handling of one of the country’s biggest corporate scandals,” the Journal said. Bafin said the employee “sold structured products linked to Wirecard on June 17, the day before the company said its auditors couldn’t confirm the existence of some $2 billion in cash. Shares of the fintech company crashed, and days later it filed for bankruptcy.”

“BaFin has long been under fire for its mishandling of early warning signals of misconduct at Wirecard,” the Financial Times noted. “Gerhard Schick, head of consumer lobby group Finance Watch Germany, on Thursday called for the dismissal of BaFin president Felix Hufeld and his deputy Elisabeth Roegele, adding that the watchdog started to crack down on potential insider trading by its staff only after intense public pressure had built up.” Financial Times

Separately, “criminal prosecutors in Munich decided not to request an arrest warrant against Jan Marsalek and other executives on the day Wirecard disclosed that €1.9 billion of cash was missing. They argued that the potential crime was not serious enough to justify immediate police custody, people briefed on the investigation told the Financial Times. A week later, Wirecard collapsed into insolvency.” Marsalek is still at large.

Wall Street Journal

Stan Kurland, PennyMac founder

Stan Kurland, who “helped build Countrywide Financial into the largest U.S. mortgage lender—then left to found his own company less than a year before Countrywide began melting down, died Jan. 23 at age 68.” Kurland left the mortgage lender following disagreements with founder Angelo Mozilo and started PennyMac in 2008.

“Mr. Kurland hired some of his former Countrywide colleagues to help run the company, which now employs more than 7,000 people.”

Financial Times

The ax falls

Commerzbank plans to “axe one in three jobs in Germany in a last-ditch attempt to turn round the fortunes of the ailing lender whose shares have dropped by 90% over the past decade. The German bank announced on Thursday it has earmarked 10,000 jobs to be cut in the next three years, part of plans to close almost one in two branches in its home market. The number of branches will be slashed from 790 to just 450.”

“Last month, Commerzbank said it will book a €610 million charge for restructuring costs in 2020 after reaching a deal with unions over 2,900 job cuts. On Thursday, it declined to comment if those jobs were included in the new target or will be additional.”

Green into gold

“Bankers once saw tackling climate change as a niche issue. Now it is a chance to fuel future profits. Is it a turning point?” the FT asks.

Elsewhere

Are two jobs too many?

Worried that he has too much on his plate, theEuropean Central Bank is advising Deutsche Bank CEO Christian Sewing to “relinquish day-to-day oversight of its sprawling investment bank,” Reuters reported. The regulators fear Sewing’s dual role as both CEO and head of the unit “leaves the investment bank open to operational hazards. While they want Sewing to hand over day-to-day oversight to another manager, he would retain ultimate responsibility as group CEO under their proposals.”

“Germany’s biggest bank is one of the few major banks in the world to assign day-to-day oversight of investment banking to its chief executive. The investment bank is the German lender’s profit driver, but also the center of risk for a bank that is deemed one of the most critical to the functioning of the global financial system.”

Quotable

“Since March last year we told banks that they should develop additional indicators to try to understand the quality of their customers and to see through the moratoria. We are not seeing a lot of that happening.” — Andrea Enria, the head of the European Central Bank’s bank supervision arm, warning that banks in the eurozone aren’t reserving enough against expected loan losses tied to the pandemic.


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