NYCB tailspin, JPMorgan lawsuit: Top banking news for March 2024

In this month's roundup of top banking news: New York Community Bancorp works through internal strife, JPMorgan Chase accuses TransUnion and others of data theft, KPMG comes under fire and more.

Click here to read last month's roundup of banking news.

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"With SVB, we saw what a modern bank run looked like with the power of social media, versus what happened to Washington Mutual in 2007 that took weeks. This time, over 48 hours, cash was flying out of treasury management systems that are so attuned to real-time transactions that you just point and click, and the money's gone," said Ken Vecchione, Western Alliance's longtime CEO.

Western Alliance's survival saga

Article by Kate Fitzgerald
For most of its 30-year history, Western Alliance Bancorp has stayed under the radar.

But that all changed during the banking crisis of March 2023, when the Phoenix-based regional bank's survival appeared to be in question for several nail-biting days.

Western Alliance's asset mix and characteristics were fundamentally different from those of Silicon Valley Bank and others that collapsed last spring. But some investors were worried that the $70 billion-asset bank's higher-than-average exposure to Bay Area technology firms put it dangerously close to succumbing to the same fate as SVB. Those fears invited market contagion.

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PNC CEO Bill Demchak said the bank failures last year were due to bad management and poor regulatory oversight.

PNC CEO: 'Regulation is uneven' between OCC, other agencies

Article by Catherine Leffert
PNC Financial Services Group CEO Bill Demchak said the bank failures that rocked the industry last spring would not have happened at institutions if they had been regulated by the Office of the Comptroller of the Currency.

"Regulatory arbitrage" is leading to banks across the country being held to different standards, Demchak said at a March 5 event hosted by Brookings about last year's bank collapses. He said that institutions can "charter shop" to find softer regulators, like the Federal Deposit Insurance Corp. and the Federal Reserve Bank of San Francisco, the respective supervisors of the failed First Republic Bank and Silicon Valley Bank.

"My primary lesson learned was that regulation is uneven," Demchak said. "It astounded me what First Republic and Silicon Valley were able to do. … Regulators didn't do their job. … Bluntly, if that was an OCC bank, that never would have happened."

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Department Of Justice Announces Cryptocurrency Enforcement Action
The Justice Department has secured $122 million from a dozen banks and mortgage companies in redlining cases since Attorney General Merrick Garland announced the agency's Combatting Redlining Initiative in 2021.
Haiyun Jiang/Bloomberg

Racist emails becoming focal point in redlining settlements

Article by Kate Berry
When the Justice Department alleged last year that American Bank of Oklahoma had engaged in redlining, emails containing racial slurs became a focal point of the allegations. One bank executive forwarded an email that proclaimed "Proud to be White!" and used the "N-word" in its entirety and other racial slurs.

In another separate redlining case against Trident Mortgage, the Justice Department described how loan officers, assistants and other employees received and distributed emails containing racial slurs and content that used racial tropes and terms. The communications sent on work emails included a photo showing a senior loan officer posing with colleagues in front of a Confederate flag, and pejorative content related to real estate and appraisals and content targeting people living in majority-minority neighborhoods. Trident, which is owned by Warren Buffet's Berkshire Hathaway, settled the DOJ's complaint in 2022 for $24 million.

Since the Justice Department launched its Combatting Redlining Initiative in late 2021, racist emails have received more attention from both the DOJ and the Consumer Financial Protection Bureau in an effort to show racial bias has permeated a company's culture.

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A year after SVB went down, regional banks are not out of the woods

Article by Polo Rocha and Catherine Leffert
The doom and gloom over regional banks after Silicon Valley Bank collapsed a year ago has so far been mostly wrong. A few midsize banks with distinctive business models went down last spring. The rest have soldiered on — and some have even thrived — in the face of investor skepticism.

But the recent troubles of New York Community Bancorp offer a reminder that the regional banking sector is not out of the woods. And given the slow-moving nature of the problems that some regionals are facing, the one-year anniversary of SVB's demise may not be the best time to assess whether they have weathered the storm.

"There's a general concern … that we're in a credit cycle," said Chris Marinac, an analyst at Janney Montgomery Scott, pointing to investor worries that "every bank is going to have some type of problem as we move into the rest of 2024 and 2025."

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KPMG branding.
Sean Gallup/Photographer: Sean Gallup/Getty

KPMG faces fresh questions over audits after New York Community turmoil

Article by Polo Rocha
The recent turmoil at New York Community Bancorp is raising more questions about its auditor KPMG, which last year faced scrutiny over its audits of three now-defunct regional banks.

KPMG has built up a large business auditing U.S. banks and had long audited Long Island-based New York Community. The bank's stock is down nearly 70% this year after a series of disclosures that have troubled investors. Last week, it replaced its CEO, filled leadership vacancies in its internal risk and audit departments and disclosed weaknesses in internal controls over its financial reports. 

The latter disclosure seemingly conflicts with an audit KPMG performed in 2022, when KPMG said the bank's internal controls were effective.

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An interesting aspect of this case is the bank's characterization of credit card data as "trade secrets."
Michael Nagle/Bloomberg

JPMorgan Chase accuses TransUnion, others of stealing 'trade secrets'

Article by Penny Crosman
JPMorgan Chase has sued TransUnion for what it calls an "elaborate, decade-long scheme" by Argus, a unit of TransUnion, to "secretly misappropriate JPM's valuable trade secret data." The "trade secret data" the bank refers to is anonymized credit card data. The case does not involve personally identifiable information.

In the lawsuit the New York bank filed against Chicago-based TransUnion last week in Delaware Federal District Court, it said Argus Information & Advisory Services collected the bank's credit card data while under contract as a data aggregator for the Office of the Comptroller of the Currency, the Federal Reserve Board and the Federal Reserve Bank of Philadelphia. Argus then, without permission and in violation of its contracts with those agencies, used that data in the benchmarking services it sells to other banks, according to the bank. The complaint also names Verisk Analytics, which bought Argus in 2012, as a defendant.

"While Argus did not have access to any of our customers' personally identifiable information, this data is valuable and competitively sensitive," said Seth Wheeler, Chase's chief data and analytics officer. "Argus used Chase's data for its own commercial gain, and it's time this pattern of behavior stops once and for all."

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First National's deal to buy Touchstone Bankshares would give it scale in the Richmond metropolitan area.
Wasin Pummarin/f11photo - stock.adobe.com

Virginia banks merging in $47 million deal

Article by Jim Dobbs
First National in Strasburg, Virginia, said on March 26 it agreed to acquire cross-state rival Touchstone Bankshares in an all-stock deal valued at $47 million.

The $1.4 billion-asset First National said the acquisition would bolster its deposit base, provide scale in the Richmond metropolitan area and create opportunities for significant cost savings and earnings accretion.

"Combining our companies will help ensure that we continue to be part of the fabric of the communities we serve," Scott Harvard, president and CEO of First National, said in a release announcing the deal. "We are incredibly excited about this opportunity to expand our Richmond metro presence."

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NYCB's new risk team fails to calm investors, ratings firms

Article by Catherine Leffert and Polo Rocha
New York Community Bancorp's latest leadership revamp did little to quell investors' worries about the Long Island-based bank, as its stock price fell nearly 26% after a flurry of announcements that started late on Feb. 29.

The company said early on March 1 that it has filled gaps in its executive ranks by hiring a new chief risk officer and a head auditor. The appointments are part of the bank's efforts to fix "material weaknesses" in its internal controls, which New York Community disclosed publicly the day before.

The hirings of George Buchanan as chief risk officer and Colleen McCullum as chief audit executive fill two vacancies that had been a source of concern for investors. But New York Community's disclosures about internal control weaknesses and an announcement that it is delaying the release of its annual report sparked new worries.

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Steven Mnuchin (left) and Joseph Otting (right) are playing lead roles in the rescue of New York Community Bancorp. They previously worked together at OneWest Bank and in the Trump administration.
Bloomberg

New York Community lands $1B capital infusion led by Mnuchin, Otting

Article by Polo Rocha, Catherine Leffert and Kate Berry
Former Trump administration officials Steven Mnuchin and Joseph Otting are part of an investment group that's providing $1 billion of capital in an effort to rescue the beleaguered New York Community Bancorp.

Otting, the former Comptroller of the Currency, will become the bank's CEO, while Mnuchin, the former Treasury secretary, will join its board, the company said on March 6. Mnuchin's investment firm, Liberty Strategic Capital, is leading the deal by pumping in $450 million, while the investment firm Hudson Bay will invest $250 million, and Reverence Capital will provide $200 million.

Alessandro "Sandro" DiNello, the former CEO of Flagstar Bancorp, who was elevated as New York Community's CEO last month, will stay with the company. His new title will be non-executive chairman, the same role he had before the bank's turmoil started in January and he took a more hands-on role.

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In a securities filing on March 14, New York Community Bancorp, which is the parent company of Flagstar Bank, described steps that it is taking to fix what it previously described as "material weaknesses" in its internal controls.
Bing Guan/Bloomberg

'They're fixing a broken bank': NYCB starts to outline a way forward

Article by Allissa Kline and Catherine Leffert
The troubled lender New York Community Bancorp on March 14 outlined steps that it's taking to improve its loan-review process and make sure it can identify potential problems at a faster clip.

Two weeks after disclosing "material weaknesses" in its internal controls, the Long Island-based company described a remediation plan that includes expanding the use of independent credit analyses, providing additional risk-rating process training for internal loan-review employees and hiring a new loan-review director.

The plan was included in New York Community's annual report, which was released Thursday after being delayed for a couple of weeks because new company management was working on a strategy to address the problems.

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