Goldman bankers ignored compliance warnings; can Barclays sustain rebound?

Receiving Wide Coverage ...

Goldman retrospective

Goldman Sachs said last week it will claw back $174 million in pay to current and former executives, including the current CEO David Solomon and his predecessor Lloyd Blankfein, as punishment for the bank’s role in the 1MDB scandal. But “will this deter executives from future wrongdoing?” the New York Times asks.

“The important point is that taking money out of a human’s pocket is more effective than taking money out of a corporation’s bank,” Joseph Grundfest, a Stanford law professor and former S.E.C. commissioner, told the paper. “Personal punishment is bound to have an impact. It also helps soften the blow for shareholders, who will pay the bulk of the fines.”

Documents released by the Department of Justice and New York’s Department of Financial Services reveal that “the compliance team at Goldman Sachs had no doubts about Jho Low,” the shady financier at the heart of the scandal. “They wanted nothing to do with him,” the Financial Times said. Yet the bank forged ahead anyway.

“In 2010, several years before the financier was allegedly at the center of a multibillion-dollar plunder of a Malaysian state investment fund, Goldman’s compliance unit was wary about Mr. Low’s dogged attempts to become a private wealth client of one of the most prestigious banks on Wall Street. ‘I do not believe we will ever be able to get comfortable with this matter,’” a senior Goldman compliance official wrote then.

Wall Street Journal

Tread carefully

“The disparities between federal and state laws governing the use of marijuana and hemp, and the differences across states, are inhibiting banks from stepping into what has become a lucrative and legal business in many areas,” the Journal reports. “Regulators have issued scant guidance and some of the existing advisories are outdated or set few clear obligations for banks, such as information that a bank should ask for from potential clients, financial institutions say.”

Financial Times

Reckless

“Bankers’ claims that the worst is over” from loan defaults and that therefore they should be allowed to resume paying dividends “ignores the reality of second-wave problems, and the deferred impact on the budgets of companies and individuals that has been cushioned by government aid,” an FT op-ed argues. “It would be reckless in the extreme for any regulator in the midst of a global pandemic with unprecedented economic consequences to allow its banking system to deliberately deplete its capital.”

Swamped across the pond

Mortgage lenders in the U.S. aren’t the only ones being swamped with applications for home loans. Banks in the U.K. “are turning away mortgage business by increasing interest rates on many new home loans, as they struggle to cope with surging demand for borrowing in a buoyant post-lockdown housing market. In a reversal of the cut-throat competition of recent years, lenders are [raising] rates to deter potential borrowers, as coronavirus restrictions have left many staff working from home, limiting their capacity to process applications.”

“A temporary stamp duty holiday that offers purchasers a tax saving of up to £15,000 has fueled a V-shaped recovery in the housing market since May. Buyers are hurrying to progress deals now so they can complete before the nine-month holiday ends on March 31, 2021.”

Meanwhile, British banks “have asked specialist debt collectors to help lead the recovery of tens of billions of pounds of government-backed small business loans, as they prepare for an expected wave of defaults and fraud cases. The task is expected to be too onerous to be handled by a single company because of the large number of small businesses forecast to run into trouble.”

“Banks have lent around £40 billion through the ‘bounce back’ scheme, providing loans of up to £50,000 to more than 1.3 million companies. The loans are backed by a 100% government guarantee, but banks have to prove they have made a thorough effort to recover the cash before claiming the money from the government.”

Washington Post

Can it last?

No large bank has benefited more from the Covid-19-inspired jump in securities trading revenue than Britain’s Barclays, “vindicating CEO Jes Staley’s strategy of sticking with investment banking and buying him time in the job,” a Bloomberg opinion piece says. “The boon may not last, however.”

“By some measures, Barclays is emerging from this stage of the pandemic stronger than when it went in. The bank has its highest ever capital and liquidity positions after creating a pot of £9.6 billion of reserves for potential credit losses from the Covid-19 recession. And the bank is chipping away at the business of its investment banking rivals. But this boom in buying and selling stocks and bonds won’t last forever. Staley has had an element of good fortune in how the pandemic has benefited his investment bank, an area in which he’s keen to keep investing. But will things still look the same way once trading returns to its pre-Covid levels?”