Charges in Equifax hack; Varo Money passes FDIC test

Receiving Wide Coverage ...

Equifax hacking charges

The U.S. Justice Department indicted four members of China’s military on charges of hacking into Equifax in 2017 “and plundering sensitive data on nearly 150 million Americans as part of a massive heist that officials said also stole trade secrets from the credit-reporting agency,” the Wall Street Journal reports. The four “are accused of conspiring to steal reams of data as part of a sophisticated hacking operation that exploited a major vulnerability in the software used by Equifax’s online dispute portal.”

Michael Nagle/Bloomberg

Equifax “holds a treasure trove of consumer data that banks tap to make lending decisions,” the paper notes. “The vast stores of data can be valuable for state-sponsored actors seeking to gain leverage against U.S. officials and other citizens, by allowing foreign governments to target Americans who are struggling financially. It is unclear, though, if such a strategy worked with the Equifax hack. Equifax has said that Social Security numbers, passport information and similar data were compromised in the 2017 breach, but that information on consumers’ debt and financial history wasn’t.”

“The information stolen from Equifax could reveal whether any American officials are under financial stress and thus susceptible to bribery or blackmail,” the New York Times says.

U.S. officials “portrayed the 2017 attack on the consumer credit agency as just one part of a continuing effort by China to steal U.S. data and intellectual property,” the Financial Times says. “The personal data of almost 150 million Americans were compromised in the breach, along with 1 million citizens of Canada and the U.K. Equifax agreed to an $800 million settlement last year over the hack.”

The charges were contained in a nine-count indictment filed in federal court in Atlanta, where Equifax is based.

Wall Street Journal

Big step for fintech

Varo Money said it received regulatory approval from the Federal Deposit Insurance Corp. to use deposit insurance, “a significant step in the fintech industry’s quest to take on traditional banks. The approval marks one of the few times the agency has given a fintech firm the ability to provide insured deposits.”

“Fintech firms generally have to partner with a bank to provide insured deposit accounts to customers. Some community banks in particular have tried to differentiate themselves by providing this and other underlying banking services to fintechs. The Varo development could diminish that role for those banks.”

“Assuming it gets final sign-offs from the OCC and the Federal Reserve, Varo will have its national bank charter in hand soon,” American Banker said. “It would be the first fintech provider among several similar applicants to get the green light from federal regulators.”

Financial Times

Good day for Deutsche

Deutsche Bank, which has delivered plenty of bad news over the past few years, received two pieces of good news on Monday. The bank’s plan “to save €100 million a year by simplifying its complex corporate structure in Germany has won the backing of regulators, boosting chief executive Christian Sewing’s efforts to overhaul” the bank’s operations. “Under the plan, Deutsche will eliminate a separate legal entity that houses its domestic retail operations.”

“The lender’s German retail operations are expected to lower annual costs by €1 billion over the coming three years, with the scrapping of [the separate entity] accounting for about 10% of the total,” the paper says.

Separately, the bank said it will issue “its first contingent convertible bond since 2014, an important milestone for Germany’s largest lender, which has been locked out of the market for years after losing the trust of investors as it lurched from crisis to crisis. The bond issue has a minimum size of $1 billion and will convert into equity if Deutsche’s common equity tier one capital ratio falls to less than 5.125%.” It stood at 13.6% at the end of last year.

In addition, Deutsche “invited bids from Microsoft, Google and Amazon to overhaul" its "outdated and fragmented technology networks,” Reuters reports. “The bank’s approach to the U.S. tech companies is part of a 13 billion euro ($14.20 billion) technology investment Deutsche has planned up to 2022 as it restructures to recover from years of losses.

“Deutsche Bank has struggled to harmonize its networks in the decades after a rapid global expansion that included the acquisition of Morgan Grenfell in London and Bankers Trust in the United States. Even some of the bank’s most basic processes are outdated. Some retail customers still get their balances entered into savings books by printers for which spare parts are no longer manufactured.”

Elsewhere

Blockchain merger

JPMorgan Chase is in talks to merge Quorum, its blockchain unit, with Brooklyn-based startup ConsenSys, Reuters reports. “The deal is likely to be formally announced within the next six months, but financial terms are still unclear.”

“JPMorgan built the Quorum blockchain internally using the ethereum network, the software that underpins ether, one of the most well-known cryptocurrencies. It is being used by JPMorgan to run the Interbank Information Network, a payments network that involves more than 300 banks.” The bank also said “it would use Quorum to issue a digital currency called JPMorgan Coin that it designed to make instantaneous payments using blockchain.”

Quotable

“This was a deliberate and sweeping intrusion into the private information of the American people.” — Attorney General William Barr, announcing the indictment of four Chinese military officials for hacking into Equifax’s computer network in 2017