Goldman VP nabbed for insider trading; more challenges for Deutsche

Receiving Wide Coverage ...

Risky business: The proposed changes to the Volcker rule will allow banks to take on more trading risk — but not dangerously so. “Volcker 2.0 gives banks more flexibility to take advantage of the shifting landscape,” which includes “a new wave of global market volatility,” the Wall Street Journal says. “Bank managers may be just a bit more likely than before to clear an aggressive market-making trade. This increased liquidity provision will make the overall market run smoother, though hopefully without banks taking on too much risk.”

The Financial Times says the “big Wall Street banks will be given a chance to rebuild their trading arsenals under a softened version of the Volcker rule on risk-taking, but they are expected to stop short of the kind of buccaneering bets they routinely made a decade ago.”

Busted: Federal regulators arrested and charged a banker at Goldman Sachs with insider trading. The Securities and Exchange Commission said Woojae “Steve” Jung, a Goldman vice president, earned about $140,000 by making illegal trades through a friend’s brokerage account in South Korea using information about mergers he learned about at work. The trades, involving at least 12 companies, took place between 2015 and 2017.

The U.S. Attorney’s office in New York charged Jung with six counts of securities fraud and one count of conspiracy to commit fraud. Wall Street Journal, Financial Times, New York Times

Trouble ahead, trouble behind: Deutsche Bank, whose American unit has been deemed “troubled” by the Federal Reserve and a “problem bank” by the Federal Deposit Insurance Corp., faces even more hurdles in the coming months. Next month, it must go through the Fed’s annual stress tests. And by July 1 it must present its “living will” plan showing regulators how it would wind itself down in a bankruptcy-type scenario. “These plans can be difficult to get right, particularly for banks with shoddy controls,” according to the New York Times.

S&P downgraded Deutsche Bank’s credit rating to BBB-plus from A-minus, citing “a deeper restructuring” than previously expected, which carried “non-negligible execution risks.” “The bank appears set for a period of sustained underperformance compared with peers, many of whom have now finished restructuring,” the rating agency said.

Rather than watching Italian banks, investors should be keeping an eye on “the eurozone’s most systemically important bank,” which has been “flashing red,” the FT says.

Wall Street Journal

All revved up: Fiat Chrysler is expected to announce plans Friday to set up its own in-house captive auto finance unit. The proposed plan, part of a larger business strategy presentation the company will be making in Italy, “could allow the company to directly extend credit to American car buyers for the first time in a decade.” The automaker currently has a partnership with Santander Consumer USA, which gets more than 30% of its business from Fiat.

Financial Times

Courting: HSBC has approached Ewen Stevenson, Royal Bank of Scotland’s outgoing chief financial officer, as it seeks a replacement for Iain Mackay as CFO. Stevenson “is widely credited with having overseen a concerted clean-up of [RBS’s] financial situation, putting it on track to restart dividend payments for the first time in a decade,” the paper says. “The move would be the first major management appointment by the new leadership team at HSBC, which last year appointed Mark Tucker as chairman and promoted John Flint to chief executive.”

New York Times

Melting down: Envion, a Swiss company that has raised $100 million to provide clean energy to computers that manage Bitcoin, was considered “to be among the more legitimate outfits creating its own cryptocurrency.” Not anymore. “Like so many other projects that have pulled in millions of dollars through so-called initial coin offerings, Envion is now melting down, with its creators accusing one another of fraud. The business appears to be in limbo. And investors are bonding on social media about how much they figure they lost on the project.”

“Fighting fraud in virtual currencies has almost become a game of Whac-A-Mole for regulators and federal prosecutors, who find each new iteration seemingly a few steps ahead them,” the paper comments in a separate article. “The challenge the authorities face is that cryptocurrencies are so new that they do not fit neatly into laws that were passed decades ago prohibiting misconduct in the securities and commodities markets. It will take time for those regulations to catch up.”

Quotable

“Now that the Treasury Department has effectively told regulators not to err on the side of caution, we can expect banks to follow suit. Expect now to see much more bank gambling again, much as before 2008.” — Robert Hockett, a professor at Cornell Law School, about the proposed easing of the Volcker rule.