Deutsche Bank shares fall to lowest level since mid-1980s
Mounting fears over troubled German bank’s ability to pay large potential fines drive down share price to one-third less than financial crisis
Sean Farrell and Jill Treanor
Tuesday 27 September 2016 03.08 EDT
Deutsche Bank has been scrambling to reassure investors it has enough cash to pay a multibillion-dollar fine for alleged wrongdoing a decade ago as its shares crumbled to new lows and knocked sentiment across the banking sector.
Shares in Germany’s biggest bank lost more than 7.5% to €10.55 on Monday despite attempts by its senior executives to insist the bank would not need help from Angela Merkel’s government with the potential fine for mis-selling mortgage bonds.
It's no surprise Berlin is telling Deutsche Bank it's on its own
Nils Pratley Read more
Deutsche, run by Briton John Cryan, had taken a pounding on markets even before the threat earlier this month of a $14bn (£11bn) demand from the US Department of Justice for mis-selling of the bonds between 2005 and 2007.
The shares have more than halved this year on mounting concerns about its financial position. They have dropped to a level not seen since the mid-1980s and are at a record low, according to some calculation methods.
Deutsche’s woes were a focus in the markets when investors were already rattled by the prospect of a “hard Brexit” by the UK – which could be denied access to the EU single market – and the political situation in the US ahead of the debate between presidential candidates Donald Trump and Hillary Clinton.
The FTSE 100 index dropped 1.3% – its biggest one-day fall since the immediate aftermath of the 23 June referendum – with shares in just seven companies up on the day.
Banks’ shares were down, including Lloyds Banking Group, Barclays and Royal Bank of Scotland, which is awaiting settlement talks with the US authorities along similar lines to those in which Deutsche is embroiled. Some analysts warn RBS, which is 73% owned by taxpayers, could face a £9bn penalty.
“Talk of a hard Brexit has not been welcomed by the market,” said Nicholas Hyett, equity analyst at financial firm Hargreaves Lansdown.
In other parts, Europe’s stock markets were also lower and Wall Street was down ahead of the key presidential debate.
Monday’s drop in the Deutsche share price came after Germany’s Focus magazine said Merkel had refused to intervene in the bank’s dispute with the US justice department and that the German chancellor had ruled out state assistance before the national election in September 2017.
Jörg Eigendorf, head of communications at Deutsche, told CNBC: “[At] no point [in] time has John Cryan asked the chancellor for support in the negotiations with the Department of Justice and he doesn’t intend to do that. He’s very strong in that position.”
Asked whether Deutsche needed to raise capital – the fine is around 80% of its stock market value – Eigendorf said: “This is just not a question for us right now. We fulfil the capital requirements. We have time to fulfil future capital requirements and that’s what we are working on.”
The potential penalty from the DoJ – which Deutsche is contesting – is more than twice the €5.5bn (£4.8bn) that the bank has set aside for litigation costs.
Even a fine some way below the £11bn demanded could strain Deutsche’s fragile finances and further dent investor confidence. It faces other potentially expensive inquiries into alleged currency manipulation, precious metals trading and billions of dollars of funds transferred out of Russia.
Steffen Seibert, Merkel’s spokesman, also tried to play down the situation facing Deutsche. “There is no reason for such speculation as presented there and the federal government doesn’t engage in such speculation,” he said.
The $14bn Deutsche Bank fine – all you need to know
Deutsche’s shares have been under pressure since early this year when the bank became the focal point of fears over European banking’s financial strength and profitability. In June, the International Monetary Fund said Deutsche was a bigger risk to the global financial system than any other bank because of its intertwined relationships with other international lenders.
One investor expressed doubts about whether Germany would really stand aside. Andreas Utermann, chief investment officer of Allianz Global Investors, told Bloomberg television: “I don’t buy at all what’s coming out of Germany in terms of Germany not wanting to step in ultimately if Deutsche Bank was really in trouble ... It’s too important for the German economy.”
https://www.theguardian.com/business/20 ... g_c-US_d-1
A Russian Tragedy: How Deutsche Bank’s “Wiz” Kid Fell to Earth
Mastermind or scapegoat, Tim Wiswell was at the heart of the bank’s $10 billion mirror-trade scandal.
By Liam Vaughan, Jake Rudnitsky, and Ambereen Choudhury | October 3, 2016
Just off the Connecticut shoreline where he grew up, Tim Wiswell leaned forward in the cockpit of his sleek, all-white 50-foot yacht. It was Aug. 9, 2015, and, dressed in shorts, a polo shirt, and mirrored shades, his hair tousled by the breeze, the 36-year-old was a picture of health and happiness. Natalia, the Russian artist he’d married five years earlier, lay by his side. Their two small children played nearby.
Nothing in the scene, captured in photographs uploaded to Facebook, hinted at the turmoil surrounding Wiswell, the clean-cut trader at the center of Deutsche Bank AG’s $10 billion Russian scandal. Four months earlier he’d been summoned into a roomful of lawyers and told he was being suspended from his job as head of equities for Deutsche Bank in Moscow. An internal investigation dubbed Project Square had determined Wiswell’s desk helped Russians divert billions of dollars out of the country using transactions known as mirror trades. Now, the U.S. Justice Department and the U.K.’s Financial Conduct Authority are investigating whether trades that flowed through Wiswell’s desk violated anti-money-laundering rules, according to people with knowledge of the matter. Wiswell hasn’t been charged, and both agencies declined to comment.
Deutsche Bank has said it could face penalties relating to the Russian debacle by the end of the year. The timing couldn’t be worse. Shares in the bank slumped last week to their lowest level in two decades following reports the Frankfurt-based lender faces as much as $14 billion in fines to resolve a separate U.S. probe into the sale of mortgage-backed securities—more than twice the amount it has set aside for all litigation. The bank said it has no intention of paying anything close to that sum, while Chief Executive Officer John Cryan has rebuffed suggestions it might seek fresh capital from investors or require a state rescue.
Anshu Jain and Juergen Fitschen
Anshu Jain (left) and Juergen Fitschen, former co-CEOs of Deutsche Bank, at the company's annual shareholder meeting in 2015
Photographer: Thomas Lohnes/Getty Images
The fallout from Project Square was precipitous. In June 2015, weeks after news reports of events on Wiswell’s desk surfaced, Cryan’s predecessors Anshu Jain and Juergen Fitschen announced they’d be stepping down, their positions made untenable by a list of scandals that also included probes into rigging interest rates and foreign exchange. In Russia, Deutsche Bank adopted the nuclear option and shut its Moscow investment bank. A trading floor that once employed 200 people and generated about $500 million a year in revenue is dark.
It’s a tragic end to a once-glittering jewel in Deutsche Bank’s fading empire. Wiswell, meanwhile, has hunkered down with his family on a surfers’ beach in Indonesia as he comes to terms with his own personal tragedy. Once touted as a rising star, he’s now being blamed for the destruction of the investment bank in Russia. He didn’t respond to calls, messages sent via social media or requests for comment made through his lawyer, Ekaterina Dukhina.
If you asked a stranger to think of the archetypal young banker, he’d probably picture someone like Tim Wiswell. Handsome but non-threatening; popular but easily forgettable; diligent, courteous, upbeat; competent but never the smartest guy in the room. Of the two dozen current and former Deutsche Bank employees and friends interviewed by Bloomberg, only a handful said they believed Wiswell was even capable of doing what the bank says he did. Many struggled to come up with much in the way of distinguishing features. One former colleague described him as ordinary. Another said he was a bit of a “himbo.”
On the surface, Wiswell makes an unlikely “mastermind,” which is how a Deutsche Bank lawyer described him during Wiswell’s unsuccessful 2015 unfair-dismissal hearing. But behind the sunny, wholesome exterior there’s another side to the man they called “Wiz”—at least according to some who knew him.
Long before he was pulled off the trading floor, rumors circulated in Moscow’s banker bars and nightclubs about the way Wiswell operated and the company he kept. In 2011, Russian authorities suspended the license of one company he was trading for as part of a money-laundering sting. And when Deutsche Bank investigators looked at transactions in an offshore account belonging to Wiswell’s wife, they found $3.8 million in unaccounted funds, including $250,000 traced to a company that was a beneficiary of the mirror trades, according to an in-house report on the bank’s investigation seen by Bloomberg.
If you asked a stranger to think of the archetypal young banker, he’d probably picture someone like Tim Wiswell.
The report outlines in forensic detail how Wiswell’s desk, which never had more than a dozen or so employees, carried out thousands of mirror trades over a four-year period. The mechanism itself was pretty straightforward. A company would buy securities from Deutsche Bank in Moscow for rubles at the same time as another entity owned by the same people in an offshore place like Cyprus, would sell the same shares for dollars via Deutsche Bank’s London office. The shares would then be transferred between the entities, completing the circle. The trades spirited money out of Russia at $10 million to $15 million a clip, according to the report. The end-users of the service weren’t revealed. Mirror trades, which aren’t illegal, can be used to aid money laundering and tax avoidance, or to violate sanctions.
Painting Wiswell as the Machiavellian figure behind Deutsche Bank’s woes may be a convenient narrative for the bank to spin, but it’s one that some former employees object to. For one thing, each new counterparty Deutsche Bank took on had to be vetted by the sales team and, if any issues were identified, by compliance in Moscow and London. Beyond that, a list of the biggest equity trades was distributed among management in Russia and London at the end of each day. In his wrongful-dismissal hearing, Wiswell said at least 20 of his bosses and colleagues, including two supervisors in London, knew about the trades because they were carried out so routinely and openly. So far, only Wiswell and two junior members of the equities business have been dismissed.
Deutsche Bank said in its 2015 annual report that it was dealing with regulators around the world and had “taken disciplinary measures with regards to certain individuals in this matter and will continue to do so with respect to others as warranted.” Adrian Cox, a spokesman for the bank, declined to comment further.
“We lived like rock stars. Russia was guzzling down economic prosperity at full tilt.”
One thing to appreciate, say those who have worked in banking in Russia for any length of time, is that Moscow isn’t like Wall Street or the City of London, where rules are more clearly defined and enforced. To thrive in such an environment requires you to adapt.
Front-running—placing personal side bets using knowledge gleaned from your job—was so commonplace among the fast-living expat crew Wiswell ran with that it was considered a legitimate way to bump up your pay, two of Wiswell’s former colleagues said. Among his friends, one left the country in a hurry after a deal with an oligarch went south and another quit after skimming $1 million during the breakup of a state-owned monopoly that Deutsche Bank assisted, according to former colleagues. The group lived a gilded existence, dropping thousands of dollars on wild nights out, splurging on fast cars and yachts, and burning off steam by heli-skiing and jumping out of planes.
Tim Wiswell skiing
“We lived like rock stars,” Will Hammond, a former equity sales executive who started at Deutsche Bank shortly after Wiswell, wrote in an as-yet-unpublished memoir about his time in Moscow titled “The Devil’s Doorstep.” “Russia was guzzling down economic prosperity at full tilt. Back then we all drank way too much and smoked cigars way too often. Videos shot inside Moscow nightclubs looked like modern versions of what went on behind closed doors during prohibition. Money was thrown around like Monopoly dollars.”
It all seems a long way from Old Saybrook, Connecticut, the picture-postcard town 100 miles northeast of New York where Wiswell was raised in a modest, three-bedroom house a short sprint from the beach. Wiswell spent his childhood sailing and playing sports. He got decent enough grades in high school but wasn’t one of the dozen or so kids singled out for the highest honors.
His parents separated, and Wiswell and his sister often flew to Russia to stay with their dad, an entrepreneur with business interests across the former Soviet Union. As a skinny 17-year-old, Wiswell spent a year at the Anglo-American School of Moscow, where he picked up the language. On returning to the U.S., he went to Colby College in Maine, the school his maternal grandparents attended 50 years earlier.
After graduating, Wiswell moved to Moscow and landed a job at a brokerage called United Financial Group, the precursor to Deutsche Bank’s Russian securities business. A former manager, who requested anonymity, recalled interviewing him. Wiswell laid out a plan to get oil-industry executives to invest in the Russian market. It never would have worked because most of them weren’t well-paid, the manager said, but it showed initiative. The bank offered Wiswell a position on the equities desk.
UFG was founded in 1994 by another adventurous young American, Charlie Ryan. A Harvard University graduate, Ryan had worked briefly on Wall Street before landing a job in St. Petersburg with the European Bank for Reconstruction and Development, which was helping Russia transition from communist state to market economy. There, still in his 20s, he met future Finance Minister Boris Fyodorov and an ambitious deputy mayor named Vladimir Putin. Fyodorov had the local connections, Ryan the Wall Street chops. A trout-fishing financial savant named Ilya Sherbovich rounded out the team. They hit up BNP Paribas SA for seed money, and UFG was born. Ryan didn’t respond to requests for comment.
Executives who witnessed the birth of the Russian securities industry paint a picture of a vodka-soaked financial gold rush. Companies were formed, utilities privatized and fortunes easy to come by. At first Wiswell was, in the language of a Russian trading floor, a “desk bitch.” Former colleagues say he ran errands, fetched breakfast, and loaded Jay Z tracks onto his boss’s iPod. When the other dozen or so bodies on the equities desk headed off for the night, Wiswell stayed late, reconciling the day’s trading documentation. He worked hard, never complained and, with his sunny disposition, people liked having him around.
Moscow Deutsche Bank headquarters
Deutsche Bank headquarters in Moscow
Photographer: Andrey Rudakov/Bloomberg
Wiswell sailed effortlessly though the corporate ranks. His job was to help attract Western investors, and for a while it was easy. Putin was now in charge and, between 2000 and 2007, the economy averaged more than 7 percent annual growth on the back of a global commodities boom. The graph of the Russian share index over the period resembles the north face of Everest. And, compared with Wall Street, margins were outstanding.
One of UFG’s most successful tactics in winning business, according to half a dozen former employees, was showing Western investors a better time than anyone else. Fund managers from Europe, Asia and the U.S. were flown into Moscow fresh-faced and sent home again three days later, disheveled but happy. Bosses sometimes doled out wads of rubles to be spent on the parts of Moscow’s nightlife best left off company credit cards, recipients said.
The client party circuit included strip joints with private rooms and nightclubs that, for $1,000, would offer table service and a chance to bypass Moscow’s legendary “face control” that kept all but the most beautiful huddled outside the security cordon, breathing fumes from 2 a.m. Bentley and Maybach traffic jams. Inside, Cirque du Soleil-style acrobats would trapeze over swimming pools full of topless dancers.
“They expect us to take clients out, to outcompete with the local brokers in showing them a good time,” Hammond wrote in his memoir. “We’re essentially the black ops. We’re the ones putting our livers at risk. We’re the boots on the whorehouse ground that our organization is not supposed to be in.”
Traders and salespeople in their 20s were making double, even triple what their better-educated peers were pulling down in New York and London
Deutsche Bank’s presence in Russia dates back more than 100 years. In the early 2000s, looking to expand, it bought Ryan’s shop, which, in less than a decade, had grown into the biggest equities house in the country. In 2004, Deutsche Bank acquired a 40 percent stake for $68 million and the right to complete the purchase. Two years later, as earnings skyrocketed, it paid $400 million for the rest.
Traders and salespeople in their 20s were making double, even triple what their better-educated peers were pulling down in New York and London. Wiswell embraced the high life. He bought a flat in central Moscow and rented a dacha near Barvikha, one of the city’s priciest suburbs, according to friends. His life seems to have resembled a never-ending frat party. At one gathering his crew held a drunken pellet-gun competition in which contestants ran around trying to shoot targets. On a work-funded trip to Turkey, Wiswell stripped naked and jumped into the Bosphorus after losing a bet, only to be stung by jellyfish, an attendee said. He met a Russian artist named Natalia at a dinner party, and a few years later they married. The wedding in Newport, Rhode Island, was featured in a bridal magazine.
Then, in 2008, VTB Capital poached almost 100 of the firm’s best employees, decimating the trading floor. As the financial crisis bit, management in London was reluctant to replace them. Clients defected, corporate activity stalled and trading failed to recover to pre-crisis levels as Putin abandoned his early promise to pursue a pro-market agenda. That year, amid scant competition, Wiswell was promoted to run equities in Russia. He was 29.
Wiswell’s role evolved into that of a cheerleader. He was loyal and reliable, and had the ear of the equities management team in London who appreciated having a straightforward Western presence on the ground to bridge the cultural gap. By now, the Russian market was moribund and the attention once lavished on the office had dissipated. Executives, at least from the equities side, rarely took the flight from Frankfurt or Heathrow anymore, according to one former senior member of the Moscow management team.
As the economic situation deteriorated, wealthy Russians became desperate to find novel ways to get their money out of the country. The roots of Wiswell’s problems, colleagues said, can be traced back to a 2011 meeting when Sergey Suverov, a burly, gruff-talking equities salesman, introduced Wiswell to Andrey Gorbatov. Still in his 30s, Gorbatov was a serial entrepreneur who at the time was a candidate for parliament. Before long, one of his firms, Westminster Capital, was selling large quantities of Russian blue-chip stocks through Deutsche Bank’s equities desk.
As a rule, trades that only go in one direction should set off alarms, but Wiswell and his colleagues asked few questions until November 2011, when the authorities suspended Westminster’s license alongside a handful of other brokerages as part of a clampdown on money laundering. An uncleared Westminster trade remained frozen for months, leaving a multimillion-dollar hole in Deutsche Bank’s books to the consternation of management.
From 2012 to 2015, about $10 billion worth of mirror trades and other suspicious transactions were used to divert cash out of Russia
That could have been the end of the story. But when Westminster’s personnel moved en masse to a new company called Financial Bridge, Deutsche Bank’s know-your-customer unit, whose job is to guard against high-risk customers, approved the firm as a counterparty. In 2013, the Russian authorities caught up and Financial Bridge’s license was annulled, but by then a network of small companies with offshore ownership and overlapping employees had been set up, allowing the transactions to continue. From 2012 to 2015, about $10 billion worth of mirror trades and other suspicious transactions were used to divert cash out of Russia, according to the bank’s internal probe, representing as much as 14 percent of Wiswell’s desk’s business.
The alleged schemes began to unravel in 2014, when a bank in Cyprus contacted Deutsche Bank in London to flag some unusually large transactions. Later that year, Russia’s central bank warned the lender to avoid dealing with a handful of small brokers, including Rye, Man & Gor, a firm Gorbatov would subsequently buy.
Alexei Kulikov, a business acquaintance of Gorbatov’s currently in jail in Russia on suspicion of fraud, met with a Deutsche Bank compliance officer in a café below the bank’s Moscow office, according to testimony provided by the employee to Russian police and seen by Bloomberg. There, Kulikov offered the compliance officer a bribe to allow him and his associates to continue trading, indicating how much he was willing to pay by writing a number on the screen of his mobile phone, the employee said. The compliance officer declined the bribe and reported it to Deutsche Bank, according to the internal report.
Gorbatov denied that his companies were involved in illegal transactions, calling mirror trades “a cheap way to exchange currency.” Kulikov, who’s contesting the unrelated fraud charges, acknowledges meeting a Deutsche Bank employee but says he didn’t offer a bribe, according to his lawyer Dmitry Chesnov.
Today, Wiswell’s boat floats empty at its mooring. After heading to Indonesia, he now finds himself in limbo. If he returns to the U.S., he could face questioning or arrest. But going back to Moscow, with all that he knows, carries its own dangers.
A friend of Wiswell’s had lunch with him in Indonesia earlier this year. He said the former trader looked good and seemed happy. But with Wiswell, it’s always hard to tell.
—With assistance from Irina Reznik, Ksenia Galouchko, and Gregory L. White.
https://www.bloomberg.com/features/2016 ... sche-bank/
At Wells Fargo, Complaints About Fraudulent Accounts Since 2005
By STACY COWLEYOCT. 11, 2016
Yesenia Guitron said she was forced out by Wells Fargo after calling attention to a colleague who she said was opening accounts without customers’ consent. Credit Talia Herman for The New York Times
In 2005, the year John G. Stumpf became president of Wells Fargo, Julie Tishkoff, then an administrative assistant at the bank, wrote to the company’s human resources department about what she had seen: employees opening sham accounts, forging customer signatures and sending out unsolicited credit cards.
She kept complaining for four years, and she was not alone. For years similar or identical complaints from Wells Fargo workers flowed in to the bank’s internal ethics hotline, its human resources department, and individual managers and supervisors. In at least two cases in 2011, employees wrote letters directly to Mr. Stumpf — who became the company’s chief executive in 2007, and its board chairman in 2010 — to describe the illegal activities they had witnessed.
Since the ethics scandal erupted in public last month, Mr. Stumpf has testified twice in front of Congress that he and other senior managers only realized in 2013 that they had a big problem on their hands — two years after the bank had started firing people over the issue.
Now, regulators, lawmakers, current and former employees, and others are asking: How was it that this drumbeat of complaints did not set off loud alarm bells earlier? And why have the brunt of the firings fallen on low-level workers, not on the managers and executives who shaped the company’s aggressive sales culture?
Wells Fargo Warned Workers Against Sham Accounts, but ‘They Needed a Paycheck’ SEPT. 16, 2016
“It appears that there were activities going on that indicate you may have known much earlier” than 2013, Representative Maxine Waters, Democrat of California, said while questioning Mr. Stumpf in a House Financial Services Committee hearing last month.
Ms. Waters pointed to court filings from 2008 from employees who tried to blow whistles, and to a Wells Fargo sales quality manual that was updated in 2007 — just months after Mr. Stumpf became chief executive, and with his executive guidance — to remind employees that they needed to obtain a customer’s consent before opening an account.
Ms. Tishkoff was fired in 2009. At least two of her supervisors were aware of her complaints and ignored them, according to a wrongful termination lawsuit she filed against Wells Fargo in 2011. Those supervisors remain with the bank and are now regional presidents, responsible for overseeing thousands of workers at hundreds of branches.
And since Sept. 8, when Wells Fargo said it would pay $185 million in fines for opening as many as two million customer accounts and credit cards without authorization, dozens of former employees have stepped forward to tell stories like Ms. Tishkoff’s — describing the company’s toxic sales culture and their own thwarted efforts to use the bank’s internal channels to draw attention to the scope of the problem.
“Everybody knew there was fraud going on, and the people trying to flag it were the ones who got in trouble,” said Ricky M. Hansen Jr., a former branch manager in Scottsdale, Ariz., who was fired after contacting both human resources and the ethics hotline about illegal accounts he had seen being opened.
Wells Fargo says that it investigates all complaints of impropriety from its ethics hotline or other channels. But it added that until 2013, it handled each complaint about account fraud individually. It was not until three years ago that the company realized it had a broader problem, according to Mary Eshet, a Wells Fargo spokeswoman.
At that point, Wells Fargo began an internal investigation. By then, though, the issue had caught the attention of prosecutors and regulators. In May 2015, the Los Angeles city attorney filed a sweeping lawsuit against Wells Fargo over its creation of unauthorized accounts.
Last month, the bank settled that case and two related actions brought by federal regulators. Ms. Eshet cited the steps the company took in response to the scandal, including its move this month to drop the aggressive sales goals that employees said created pressure to act unethically.
“We have made fundamental changes to help ensure team members are not being pressured to sell products, customers are receiving the right solutions for their financial needs, our customer-focused culture is upheld at all times and that customer satisfaction is high,” Ms. Eshet said.
But former employees whose cases are detailed in lawsuits against the bank say that many of the managers at the branch level and above who heard their ethics complaints did nothing and are still there. Between 2011 and this year, Wells Fargo terminated the employment of 5,300 workers for creating as many as two million unauthorized bank and credit card accounts; around 10 percent of those worked at the branch manager level or above, according to the bank, but only one — an area president — had a high-level management role.
In 2009, Yesenia Guitron, a banker in the Northern California town of St. Helena, filed reports to her branch manager, to her branch manager’s boss and to Wells Fargo’s ethics hotline about a colleague who she said was opening and closing accounts without customer permission.
Those and other fraudulent acts continued despite her complaints, and were openly tolerated by the branch’s management, Ms. Guitron told Wells Fargo’s human resources department. In 2010, Ms. Guitron was called into her boss’s office and told she was being fired for insubordination.
Ms. Guitron filed a wrongful termination lawsuit, submitting into the public record thousands of pages of documents and testimony from multiple branch workers about the unethical acts they said they witnessed. The court sided with Wells Fargo and dismissed the case in 2012. Ms. Guitron had an “objectively reasonable” belief that the bank had acted fraudulently, but Wells Fargo still had grounds to fire her because she fell short of her sales goals, the judge ruled.
Pam Rubio, the manager of the branch where Ms. Guitron worked, is now a private banker at Wells Fargo, managing money for wealthy clients. Also still with the bank is Greg Morgan, the regional manager whom Ms. Guitron approached about the problems at her branch. He was promoted last year and is now Wells Fargo’s regional president of the San Francisco market. (Neither Ms. Rubio nor Mr. Morgan responded to requests for comment.)
“We agree with the judge’s finding that her claims of retaliation had no merit,” Wells Fargo said in a written statement.
Wells Fargo said that Ms. Tishkoff was terminated “for falsifying expense reports” and that the bank “does not tolerate retaliation against team members who report their concerns.” Ms. Tishkoff’s side of the story is that she accidentally submitted several low-dollar expense items twice and that the company used that as a premise to fire her. The case was settled in 2012, according to Ms. Tishkoff’s lawyer, who said the terms of the deal prevented her from speaking publicly about it.
As outrage over the bank’s actions has grown, frustrated former employees have said the bank should have heeded what they have said were widespread warnings and taken action much earlier — a fact Mr. Stumpf acknowledged at a hearing before the House Financial Services Committee.
“We should have done more sooner,” he said.
That answer does not satisfy Mr. Hansen, the former branch manager in Scottsdale, who said he was fired for speaking up.
Mr. Hansen started at Wells Fargo in 2008 and worked his way up to a management job. A number of his region’s top performers openly cheated, he said, but in 2011, while stationed away from his branch to cover for a colleague, he came on a particularly egregious case: The branch’s bankers were inventing fake businesses and opening accounts in their names, he said.
“I called H.R. and said, ‘What do I do?’” Mr. Hansen recalled. “And they said, ‘Go to the ethics hotline.’”
“They said that if we knew about fraud going on and did not report it, we could be terminated for that,” he said.
Mr. Hansen said he called the ethics line. The investigator asked for specifics, such as the account numbers and the names of the bankers who opened them. Mr. Hansen said he pulled up the accounts to gather that information.
One month later, he was fired for improperly looking up account information.
“They said, ‘Are you aware that what you did was an ethics violation?’” Mr. Hansen recalled.
Incensed, Mr. Hansen sent an email in 2011 to Mr. Stumpf and several human resources executives describing what he had witnessed. The company responded by offering to rehire him in a reduced role, making $30,000 less than he had before. He took the job because he needed one, he said, but quit two years later from the stress of working in what he considered to be an unethical place.
Rasheeda Kamar, a former branch manager in New Milford, N.J., also sent Mr. Stumpf a letter in 2011, the day she learned she was going to be fired for falling short of her branch’s sales goals. Bankers were reaching those goals artificially, she warned him: “Funds are moved to new accounts to ‘show’ growth when in actuality there is no net gain to the company’s deposit base.”
Her letter, like Mr. Hansen’s, was sent two years before Mr. Stumpf says he became aware that such activity was prevalent.
Ms. Kamar said she felt vindicated last month, when Wells Fargo admitted that thousands of its workers had acted illegally — until she read a quotation from Mr. Stumpf blaming the bank’s employees, not its corporate culture, for the fiasco.
“I thought, ‘How dare he?’” she said in an interview. “They knew, and they turned a blind eye.”
She forwarded her 2011 email to Mr. Stumpf to Senator Robert Menendez, Democrat of New Jersey, who quoted it to Mr. Stumpf when the Senate Banking Committee grilled him.
“I don’t remember that one,” Mr. Stumpf replied.
http://www.nytimes.com/2016/10/12/busin ... -2005.html
Wells Fargo CEO Stumpf Quits in Fallout From Fake Accounts
Laura J Keller
October 12, 2016 — 4:09 PM CDT Updated on October 12, 2016 — 4:22 PM CDT
John Stumpf, who led Wells Fargo & Co. through the financial crisis and built it into the world’s most valuable bank, stepped down as chief executive officer and chairman, bowing to public outcry over legions of accounts opened by his employees for customers who didn’t request them.
Stumpf, 63, is retiring from both posts effective immediately, the bank said Wednesday in a statement. Tim Sloan, 56, the company’s president and chief operating officer, will succeed him as CEO. Lead director Stephen Sanger will serve as the board’s non-executive chairman.
“John Stumpf has dedicated his professional life to banking, successfully leading Wells Fargo through the financial crisis and the largest merger in banking history, and helping to create one of the strongest and most well-known financial services companies in the world,” Sanger said in the statement. “However, he believes new leadership at this time is appropriate to guide Wells Fargo through its current challenges.”
Stumpf leaves Wells Fargo and its 268,000 employees with a damaged reputation. It has refunded $2.6 million to affected customers and has said it’s ending the sales incentives that have been blamed for the abuses. The bank’s stock fell as much as 12 percent after the misdeeds became public, and its subsequent rebound has not been enough for Wells Fargo to retake the top spot in market value among U.S. banks, which it relinquished to JPMorgan Chase & Co.
Wells Fargo shares climbed 1.5 percent to $46 in extended trading at 5:11 p.m. in New York, after the bank announced Stumpf’s exit. The stock had slumped 17 percent this year through the close of regular trading, the worst performance in the 24-company KBW Bank Index.
It’s an ignominious end to a nine-year tenure as CEO that saw Wells Fargo grow to become the biggest U.S. home lender with returns that were the envy of other bank executives. The profits were driven in part by cross-selling -- offering credit cards to customers who opened checking accounts, for example -- the strategy that’s at the center of the scandal that brought Stumpf down.
For more on Wells Fargo’s new CEO Tim Sloan, click here
Stump’s unraveling began on Sept. 8, when the U.S. Consumer Financial Protection Bureau announced that Wells Fargo had agreed to pay $185 million to settle allegations it secretly opened the unauthorized accounts. Multimillion-dollar settlements have become almost routine in the banking industry, but the brazenness and breadth of the misconduct struck a nerve.
The U.S. Senate called a hearing, and two weeks later Stumpf traveled to Washington for an almost three-hour grilling. “I am deeply sorry that we’ve failed to fulfill on our responsibility to our customers, to our team members and to the American public,” Stumpf told the Senate Banking Committee. “I’ve been through many challenges at Wells Fargo, but none of which pains me more than the one we will discuss this morning.”
Senators took turns berating him. Senator Elizabeth Warren accused him of “gutless leadership” for blaming junior employees.
“You should resign,” the Massachusetts Democrat told Stumpf. “You should give back the money that you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.”
A week after the hearing, Stumpf agreed to forgo $41 million in unvested stock that had been granted for performance, as well as some of his salary.
That wasn’t enough for Congress. At a second hearing on Sept. 29, called by the House Financial Services Committee, Stumpf denied there was any organized effort to open unauthorized accounts. Lawmakers suggested the bank should be broken up and called for his arrest.
Wells Fargo “is a criminal enterprise,” said Gregory Meeks, a New York Democrat. “Would you allow someone to walk out after robbing your bank?”
The San Francisco-based bank said it had fired 5,300 employees over the fake accounts. Some low-level bankers came forward, saying they were under intense pressure to meet sales quotas. They said managers told them to do whatever it took to open new accounts, even if customers didn’t ask for them.
At Warren’s insistence, the Department of Labor agreed on Sept. 26 to conduct a review of whether the bank violated wage and overtime rules while pushing branch workers to meet aggressive targets. U.S. prosecutors are also investigating, according to a person with knowledge of the matter.
“What you saw from the two hearings was that he came across as really out of touch, not just with what was going on in the bank, but also with the current political environment,” said Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods in New York. “It was a certain aloofness that he presented, which is not what you wanted to see in that situation. Overall, he completely misread the situation.”
Stumpf, one of 11 children of a dairy farmer from Pierz, Minnesota, about 100 miles (160 kilometers) north of Minneapolis, joined the loan department of Norwest Corp. in 1982 and rose through the ranks. In 1998, Norwest merged with Wells Fargo and Stumpf was put in charge of Arizona, New Mexico and Texas. He was appointed president in 2005.
When Stumpf assumed the top job in June 2007, the U.S. housing bubble was about to pop. A year later, amid the ensuing financial crisis, he outmaneuvered Citigroup Inc. to purchase Wachovia Corp. American Banker chose Stumpf as its 2013 Banker of the Year, and Morningstar Inc. named him its CEO of the Year for 2015. Aside from settlements with cities such as Baltimore and Memphis for predatory mortgage lending in which it neither admitted nor denied wrongdoing, Wells Fargo generally avoided controversies that ensnared some of its competitors.
While Stumpf lacks the presentation skills of some other CEOs, he deserves credit for managing the integration of Wachovia, said Gary Townsend, founder of family office GBT Capital Management in Chevy Chase, Maryland.
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Other Wall Street CEOs have survived more costly misdeeds. Lloyd Blankfein of Goldman Sachs Group Inc. was excoriated at a 10-hour Senate hearing in 2010 over the bank’s aggressive marketing of mortgage investments and paid a then-record $550 million fine. JPMorgan’s Jamie Dimon faced a congressional committee’s displeasure over the London Whale trading debacle, which ended up costing more than $1 billion in fines. Even J.P. Morgan Jr. was dragged before Congress in 1933 to take blame for the Great Depression. None lost their jobs.
“There is not a single American with a bank account who hasn’t had complications, errant fees or frustration,” said Isaac Boltansky, an analyst at Compass Point Research & Trading LLC in Washington. “That’s what makes this account scandal so insidious and relatable.”
Wells Fargo has paid Stumpf more than $250 million since 2000, when the bank first began disclosing his compensation. That figure includes $23 million in salary, $44 million in cash bonuses, and $190 million from the vesting of stock and exercising of stock options.
As CEO, Stumpf cultivated a folksy persona, regaling interviewers with descriptions of his hardscrabble upbringing. He pushed cross-selling, using slogans including “Eight is Great” to encourage bankers to sell eight different products to each customer.
Ironically, the fake accounts weren’t profitable for Wells Fargo, according to Mike Mayo, an analyst at CLSA Ltd. in New York.
Stumpf was two years away from Wells Fargo’s mandatory retirement age of 65.
http://www.bloomberg.com/news/articles/ ... e-accounts
Wells Fargo: There were nearly 70 percent more potentially fake accounts opened than originally thought
Published 32 Mins Ago | Updated 16 Mins Ago
Tim Sloan, Chief Executive Officer of Wells Fargo & Company
Lucas Jackson | Reuters
Tim Sloan, Chief Executive Officer of Wells Fargo & Company
Wells Fargo & Co. said it uncovered nearly 70 percent more potentially unauthorized consumer and small-business accounts than originally thought after an independent investigation into a sales scandal that erupted last year.
The disclosure on Thursday marks the conclusion of that investigation, the bank said. Earlier this month, Wells Fargo CEO Timothy Sloan warned his employees to brace for more negative headlines, saying the review by an outside firm could reveal a "significant increase" in the number of accounts involved.
On Thursday, the bank said the review of 165 million retail accounts opened from January 2009 to September 2016 identified 3.5 million as potentially unauthorized. That is up from the 2.1 million accounts originally identified in a narrower review that only covered 93.5 million accounts opened from May 2011 to mid-2015.
Sloan said on a conference call early Thursday morning that the bank was now focused on remediation for customers, adding that it cast a wide net in the review and that some of the accounts identified may have been opened legitimately.
"To rebuild trust and to build a better Wells Fargo, our first priority is to make things right for our customers, and the completion of this expanded third-party analysis is an important milestone," Sloan said.
On Wednesday, billionaire investor Warren Buffett told CNBC that when one puts a spotlight on a large financial institution like Wells Fargo, they're likely to find something.
"What you find is there's never just one cockroach in the kitchen when you start looking around," the chairman and CEO of Berkshire Hathaway said on "Squawk Alley."
Berkshire is Wells Fargo's largest shareholder, holding a 9.4 percent stake.
"Anytime you put focus on an organization that has hundreds of thousands of people ... you may very well find that it wasn't just the one who misbehaved that you find out about," Buffett said.
Wells said the investigation was covered by a third-party firm, which identified 2.55 million potentially unauthorized accounts from the original 4½-year time frame plus another 981,000 accounts in the expanded, eight-year period.
This is breaking news. Please check back for updates.
https://www.cnbc.com/2017/08/31/wells-f ... ought.html
Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality
Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman
NBER Working Paper No. 23805
JEL No. E21,H26,H87
Drawing on newly published macroeconomic statistics, this paper estimates the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity—from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised series of top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth
accumulation among the very rich in a globalized world.
The Dirty $50 Billion Scam Wall Street Is Getting Away With
Jed Rothstein’s new documentary, ‘The China Hustle,’ exposes a hair-raising financial scheme ripping off American investors—which Wall Street has done nothing to stop.
Dan David ran a small Philadelphia-area investment firm that was hit hard by the 2008 economic downturn. Determined to get their clients’ money back, he and his partner began to buy into Chinese companies that were listed on American stock exchanges and were making tons of money for investors. By 2010, David’s company earned back the money it had lost.
But that same year, David started hearing that many of the companies he was investing in were basically shell corporations with no assets. Concerned about the validity of the reports, David hired a team to go to China and investigate 30 corporations. What he found, says David, is that the doom-and-gloom types “were understating the problem.”
David is the central character in The China Hustle, a new documentary debuting theatrically and on VOD March 30. The film is the story of a major financial scandal involving overvalued Chinese companies listed on the NYSE, NASDAQ, and the Over-The-Counter Bulletin Board that are promoted by banks and investment firms and have ripped off American investors to the tune of as much as $50 billion. This is money that, instead of going overseas to fraudulent Chinese businesses, could have been invested in legitimate corporations. And if the stock prices of these businesses collapse when their fraud is discovered, it is not the Chinese who lose money, but individual investors.
“When I first heard about this,” says China Hustle writer-director Jed Rothstein, “I thought this is totally nuts. We are still digging out of this old financial scandal, and no one is paying the price. The system is not set up to punish fraud, especially not internationally.”
The scam is relatively simple. In what’s known as a “reverse merger,” a Chinese company merges with an American shell company (a company which has largely ceased operation but is still listed on stock exchanges), and goes public without jumping through the regulatory hoops the SEC requires, because the American company has already gone down that road. Then, using inflated financial statements, the new corporation looks attractive to investment banks and other Wall Street entities, which hype the company and earn fees by selling its stock. According to the film, between 2006 and 2012, 400 Chinese companies were listed on U.S. exchanges, and 80 percent were the result of reverse mergers.
If it all looks good on paper and these companies seem legit, that’s because they have all been audited by well-known businesses like Price Waterhouse—but the financial statements are prepared by management, not the auditors, and, says Rothstein, “auditors are not set up to ferret out fraud. When you see an audit by a reputable company it doesn’t ensure there is no fraud, it just ensures the numbers provided to the auditors are added correctly.”
The perfect example of this con game is a company called Orient Paper, which claimed to be shipping tons of high-quality paper all over China, with revenues of $100 million annually. When a potential American investor went to check out the factory, he discovered it was on a poorly maintained country road that could not support the large trucks Orient was allegedly using to transport its product. Inside the factory, he discovered numerous broken machines, garbage rotting in the front yard, heaps of rotting cardboard everywhere. The American, Carson Block, called the business “a complete sham,” and wrote a report about his findings, which ultimately led to a collapse of Orient’s stock.
Outraged by this, and by a feeling that Americans were being ripped off because of the opacity in Chinese business dealings, David decided to sound the alarm. “First we went to exchanges and investment banks,” he says. “They basically said get out of here, you’re basically telling us not to collect fees. Then we went to the SEC. They have no mandate, no jurisdiction in China, so what are they supposed to do? They can’t investigate, and they can’t send someone to China.”
“The finance industry is set up to maximize opportunity and, in international cases, to minimize accountability,” adds Rothstein. “Because of this lack of accountability it enables the bad actors in China to get away with fraud in the U.S. market, and it enables the gatekeepers [the SEC, auditors, etc.] to have plausible deniability. There isn’t a lot of appetite for regulation and rules.”
So what else is new? Fraud seems to be baked into the system, and has been for quite some time. The China Hustle makes it clear that it is not illegal in China to steal from foreign investors, that if a Chinese company releases false information about its financials into the U.S. market, Chinese authorities have no power to punish it. Couple this with the anti-regulatory mindset of the American government and its investment community, and you have the perfect recipe for massive deceit.
“The industry should encourage laws that foster accountability and transparency and they don’t,” says Rothstein. “And there are people of good faith in our government trying to do the right thing, but now, with this current administration, they want to remove regulation, and make more of a free for all. Free for all is fine if you have a level playing field, but our government is not doing its job to ensure fair play in the markets.”
Adds David: “We have decided as a government that fraud is a fine that companies pay. What the banks say to the government is, you catch us committing fraud, put a number on it, and no one goes to jail.” And the government acquiesces because, adds David, “anyone of these banks makes more profit in one quarter than the SEC has in its entire budget.”
David has decided to fight back by outing companies in reports he publishes, then making money off their stock downturns by the process known as short selling—borrowing stock at one price, selling it, then buying it back once bad news causes the price to collapse and he can return the borrowed shares to the owner at a profit. He and other like-minded investment experts have put dozens of companies out of business in this way, but it’s only a drop in the bucket.
“When I went to Washington” to alert the SEC and others about these frauds “no one wanted to hear me,” he says. “But now when I say something is a fraud [they listen].”
The China Hustle ends with footage of the 2014 initial public stock offering by Chinese commerce giant Alibaba, the biggest IPO in history.
But was the company really worth the initial $25 billion dollars it managed to raise? Or was buying its stock akin to “buying a lottery ticket,” as one skeptic says in the film? The China Hustle does not answer these questions, but certainly leaves doubt in the viewer’s mind.
Ultimately, David says he is not angry with China, but with the American investors and institutions that enable these deceptive practices. “You don’t know how many threats I get,” he says, “and it’s not from some Chinese CEO. It’s from a guy who lost money in his E-Trade account. It taught me that people in this country would rather make money on a fraud than lose money on the truth.”
https://www.thedailybeast.com/the-dirty ... rig_ABTest
Nomi Prins condemns government, banks in 'Collusion'
Author Nomi Prins used to be a Wall Street banker. Now she writes about how banks and economies work, with a critical eye. For instance, she explores how in 2017 U.S. banks used 99 percent of their earnings to buy their own stocks and pay out dividends to their shareholders.
In the wake of The Great Recession, the hope was that the banks would start putting money back into the economy. Prins’ new book is “Collusion: How Central Bankers Rigged the World.” The work condemns the role politicians, government regulators and bankers have played in supporting an ultimately unsustainable global banking system. She contends that their economically dubious policies will make the next financial crisis worse than the last.
Nomi Prins gave this Town Hall Seattle talk on May 7 at Summit on Pike. KUOW’s Jennie Cecil Moore recorded her address.
https://www.nbcnews.com/think/opinion/t ... d_nn_tw_ma
Trump's learned nothing from the financial crisis, and his deregulation spree could trigger another
The biggest banks are still big (and in some cases bigger), and still prone to making mistakes or scamming consumers
Sep.06.2018 / 12:56 AM ET
The 2008 financial crisis cost every American $70,000, according to the San Francisco Federal Reserve. An entire generation’s lifetime earnings will be lower because of it. Trillions of dollars in wealth were destroyed.
And yet, we seemingly learned nothing from it — which means it could happen again, and sooner than you think.
The 2010 Dodd-Frank financial reform law was supposed to prevent a repeat catastrophe from occurring by bolstering consumer protection, bringing banks’ shady transactions under regulatory scrutiny, and providing a way to take apart big, failing banks instead of bailing them out, among other measures. But Congress and the Trump administration are weakening what didn’t go far enough in the first place.
For instance, on a bipartisan basis in May, Congress approved a measure that raises the level at which banks are subject to stiffer regulation, from $50 billion in assets to $250 billion. It was presented by members of Congress as a way to provide relief to community banks, but it actually allows for less attention on major regional players such as Sun Trust or BB&T, and will encourage other banks to grow up to the $250 billion barrier. Lehman Brothers, remember, was not the biggest of the big when its bankruptcy occurred, so allowing the definition of “big” to creep ever upward is dangerous.
A second deregulation bill passed the House in July with a big bipartisan majority. It would do further damage by exempting some non-banks — such as insurance companies or money managers — from assessments meant to determine whether a firm can survive a national economic calamity without being bailed out. This is a key change with potentially catastrophic consequences: just because companies aren’t banks doesn’t mean they can’t take down the financial system. AIG, for example, was an insurance company that was so entangled with Wall Street that it received a bailout in 2008, despite not being a bank. The Senate could likely muster up a healthy number of votes for this bill too, and Majority Leader Mitch McConnell has pledged to vote on it before the midterm elections.
Then there’s the Trump administration’s undermining of the Consumer Financial Protection Bureau, an agency that is one of the most concrete tools to protect regular Americans from being ripped off by financial institutions — which they were before the crisis. Though far from perfect, the bureau has won important victories for consumers by taking on deceptive credit card company practices, standardizing mortgage forms and cracking down on predatory lending at for-profit colleges – securing consumers billions in refunds from ill-gotten corporate gains.
Trump then took office, and appointed Mick Mulvaney to run the bureau, who doesn’t believe it should exist and is acting like it. He’s pulled back from investigations, ended promising cases and even changed the bureau’s name. He seems to want to prevent the agency from doing its job at all, though it’s the only regulator solely tasked with the welfare of consumers rather than that of financial institutions.
The same thing is occurring at the Office of Financial Research, a team within the Treasury Department charged with collecting and standardizing the sort of data regulators didn’t have in the buildup to the 2008 crisis, which could have helped them spot the mess in mortgage markets sooner. Trump’s appointee to head the office used to be on the staff of Rep. Jeb Hensarling, R-Texas, who wanted the office abolished altogether. Like Mulvaney, there’s little reason to think he would work to fulfill the office’s mission.
A further big flaw in Dodd-Frank is that it left much of the nuts and bolts up to the discretion of regulators, rather than creating hard and fast rules for them to implement. Now, given the general anti-regulatory mindset that the Trump team brought to federal agencies, all sorts of key regulations are having exemptions baked in — including rules that would have reined in some of Wall Street’s riskiest trading practices — when they’re being written at all.
This all matters because it is unclear whether the financial system is actually any safer than it was when Lehman Brothers hit the skids. The biggest banks are still big — and in some cases bigger — than they were in 2007, and they’re again making money hand over fist. They also aren’t any less prone to making boneheaded mistakes or scamming consumers, because doing so enables them to make loads of money, as they did before the crisis. The misdeeds of Wells Fargo alone can fill entire articles.
And since no bank executives were punished for their roles in fomenting the meltdown, they’ve evinced no concern about getting back to their same tricks.
Meanwhile, much of the regulatory infrastructure of Dodd-Frank that does exist is untested. For instance, the law gives regulators the power to close and dismantle a failing financial behemoth without resorting to the sort of ad hoc bailouts to which Congress and the Bush administration turned. Will that new power work? Will regulators even have the fortitude to try it? No one really knows, and the matter won’t be settled until a new crisis hits.
It’s difficult to avoid the conclusion that big financial institutions and decisionmakers in Washington are hoping that the financial crisis is far enough in the past that the public will ignore how the regulations designed to prevent another are being rolled back or moderated. Before the crisis, there was bipartisan agreement that Wall Street should be given freer rein to operate; now there is again, in deed if not in words.
The saying goes that those who forget history are doomed to repeat it. A decade is far too soon to forget how dark the days of the financial crisis really were.
Pat Garofalo is a writer and editor based in Washington, D.C. He was formerly an editor at U.S. News & World Report and ThinkProgress. His book, "The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs" will be published in March 2019.
Related: Under Trump, Wall Street's Future Is Bright. Yours and Mine? Not So Much
The big banks are back in charge of financial regulation and much more.
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