Showing posts with label Wells Fargo. Show all posts
Showing posts with label Wells Fargo. Show all posts

Thursday, March 25, 2021

Black Banking Startup Raises $40 Million

According to a press release, "Greenwood, the digital banking platform for Black and Latino individuals and business owners, today announced it has closed $40 million of Series A funding from six of the seven largest U.S. banks and the top two payment technology companies: Truist, Bank of America, PNC, JPMorgan Chase, Wells Fargo (Its still time to Clean House at Wells), Mastercard, and Visa."

The investor group also includes the largest Hispanic bank in the US, Banco Popular. (Looks like the crisis has finally forced the realization that, as MLK noted, "we must 'live together as brothers or perish together as fools." )

FIS, TTV Capital, SoftBank Opportunity Fund, Lightspeed Venture Partners and All-Pro NFL running back Alvin Kamara were also listed as investors.

For a startup to receive funding from six of the seven largest firms in its industry is significant. The key question is why and what will they do with this funding?

Greenwood started out of the BankBlack movement, an effort to redress years of neglect and discrimination.

We have observed a remarkable increase in the performance of minority bank stock: these stocks (blue line) have outperformed the S&P 500 (green line).




The S&P 500 Index (green) returned 74.73% over the past year. The Minority Bank portfolio (blue) returned 112.27% over the same time period. 

At the Federal Reserve Bank of Kansas City in 1994, I suggested the Federal Reserve purchase mortgage-backed securities (MBS) originated by Black banks as part of open market operations. The Fed, then under Alan Greenspan, refused, reversing course only in 2008, when large non-minority banks got into trouble.

We still believe the Fed will need to create a Black bank liquidity pool totaling at least $50 billion by conducting repo and reverse repo transactions, purchasing Treasury, MBS securities (and/or SBA PPP loans) from Black banks, asset managers and fintech firms with a record of actually making loans to the Black community.

Greenwood may very well be one of these. We will see.

Thursday, March 26, 2020

Nationalize the Banks



According to the Financial Times, megabank Wells Fargo & Co “has asked the U.S. Federal Reserve to remove an asset cap introduced during its accounts scandal in order to allow it to support businesses and customers hit by the coronavirus economic fallout..”

The growth cap was imposed after the bank “acknowledged that it improperly foreclosed on 545 distressed homeowners after they asked for help with their mortgages, created 3.5 million fake accounts, charged 570,000 customers for auto insurance they did not need, and illegally repossessed vehicles from hundreds of service members.” Former bank employees state that Wells "targeted black churches” and neighborhoods by offering escalating-interest mortgages, which some loan officers called “ghetto loans.”

This week, the bank demanded that call center workers come to the office despite coronavirus, but agreed to pay "all of its domestic full-time employees who make less than $100,000 a year.. a pre-tax payment of $600 and part-time employees.. a $300 bonus."

Wells suggested the Fed remove the $1.95 trillion asset cap, “which has curbed its growth and profitability since it was imposed in 2018..” In 2019, Wells Fargo reported net income of $19.5 billion.

This request must be viewed in the context of the current COVID crisis and banking industry profits. JPMorgan Chase, the country’s largest bank, reported record profits of $36.4 billion in 2019, the highest annual earnings any U.S. bank has ever reported. Citigroup announced its best results since the 2008 financial crisis, reporting $19.4 billion in profits for 2019.

Wells Fargo’s request exposes the greed and lack of public concern that is the cause of the bad banking behavior we have seen in recent years. These are simply greedy, unpatriotic institutions whose behavior now, in the midst of this crisis, borders on the psychopathic. (A Former Wells Fargo CEO wants people to go back to work and 'see what happens.' He said 'Some may even die, I don't know.' This lack of empathy is the textbook definition of a psychopath.)

The country is in the beginning stage of the most serious social and economic crisis it has ever faced. To ensure the country does not fall into depression, the federal government will need to make deposits directly into roughly 300 million banking accounts. It will have to send direct payments via new fintech platforms, like Venmo and PayPal, to reach the broadest number of citizens. Credit unions and check cashing firms will also have to be included, quickly, while avoiding double counting, and making sure that only eligible US citizens receive money.

Mortgage and loan terms will also have to be revised. We know financial institutions can do this, since it’s what they did in the years leading up to the financial crisis, when loan terms were revised in favor of the banks, in many cases without letting borrowers know. (In 2001, we helped create one of the first wide scale home mortgage loan modification projects in the United States. The project helped families victimized by predatory lending practices. See: https://www.creativeinvest.com/PropertyFlipping.pdf ) Now, the task is to reset loan terms in favor of borrowers. It is uncertain that banks can do this in a fair, unbiased manner. This is why nationalization is needed.

While privately-owned banks place “short-term profits for their shareholders as their highest priority” they are required to “maintain stability and public confidence in the nation's financial system.” Megabanks must be part of the solution, but, if a bank is primarily worried about profitability before the public interest in THIS environment, they will only make things worse.

The solution is to have the government, via the Fed, in the public interest, take over the banks.

Tuesday, November 20, 2018

Time to clean house at Wells Fargo


The megabank’s continued compliance problems suggest that all of its board members, along with 100 of its most senior managers, should be replaced to make way for real change.

https://www.americanbanker.com/opinion/time-to-clean-house-at-wells-fargo

Thursday, September 14, 2017

The SEC, ICOs and roaches

In a statement straight out of the Ministry of Public Enlightenment, a member of the U.S. Securities and Exchange Commission's (SEC) division of enforcement "compared those seeking to leverage the blockchain use case improperly to cockroaches."

To be specific, SEC Enforcement Division co-director Steven Peikin said "roaches kind of crawl out of the woodwork and try to scam money off of investors."

Of course, he should know.

According to the Anne Frank Guide, this type of language was a key feature of nazi propaganda: "Jews are described everywhere as a threat to Germany and the German way of life that had to be dealt with quickly and harshly. They were even compared to rats and cockroaches."

The issue is this: it is impossible for Mr. Peikin to know which ICOs are scams unless he can look into the hearts of ICO issuers to determine their true motivation. He knows this. We know this. He must, then, actually be referring to all ICOs. This is the same type of  discriminatory attitude used to categorize all Black men as "thugs."

This is also a prejudicial statement from a person in a position to not only influence, but to actually carry out enforcement actions against ICO issuers. My hope is that legal counsel for those so accused would point to this single statement as justification for dismissing, or at least questioning, any charges brought by the SEC.

One wonders why the SEC did not use the same language to describe the traders at Goldman Sachs, fined more that $5 Billion in connection with its sale of residential mortgage backed securities, or Wells Fargo when they set up a special sales office to steer risky subprime loans to residents in Prince George's County, Baltimore city and other predominantly black communities, or Standard and Poor's when issuing fraudulent credit ratings on residential mortgage-backed securities and collateralized debt obligations. (Talk about insects....)

We know why Mr. Peikin and the SEC Enforcement Division made no such statements. After all, employees at these large financial institutions are friends, fellow church and synagogue members, colleagues and, most importantly, potential employers.

This is exactly why ICOs are so necessary and why they are popular. 

Saturday, August 19, 2017

THIS is the statue that should replace Gen. Lee's

Maggie L. Walker founded St. Luke Penny Savings Bank in 1903, a time when Jim Crow laws and institutionalized prejudice conspired to prevent blacks from borrowing money or from even having bank accounts. This was done, of course, to keep blacks in a position of economic servitude, a situation blacks still suffer from to this day.
Born a year before emancipation, Ms. Walker, the daughter of a former slave, is the first American women to have successfully opened a bank. (Having attempted in 2008 to raise $50 million to create a black-owned bank holding company to make capital investments in and own parts of new and existing black-owned U.S. banks, I can tell you that this is no easy task.) She did so in the South. In Richmond, Va., the capital of the confederacy. during a time when even white women were not allowed to vote. In the South. (Oh, and she also led a boycott of Richmond’s segregated trolley car system, 50 years before the Montgomery Bus Boycott.) I'd say she's worthy of statues all over the country.
Of course, the issue of black economic empowerment via the use of black banks is still a problem. There are those, like One United Bank, in Boston, who will claim the mantle Ms. Walker left. They are, however, spectacularly unworthy: the FDIC "accused the management of OneUnited Bank, one of the largest black-owned banks in the country, of running an unsound lending operation and ordered a top-to-bottom review of executive perks that included a 2008 Porsche and a housing allowance for a beach-front home in California." One United also foreclosed on the oldest black AME Zion church in Boston, despite offers of assistance from the City's mayor. Ms. Walker, I'm sure, would not be amused. (BTW, Liberty Bank and Trust in New Orleans is a much better run black owned bank.)
The lack of ethics cited above is a key part of the black bank legacy problem and why our economic forecasts, starting in 2011, predicted an 87% decline in the number of black banks, measured from the height of the black bank era, reached around 1994 when there were 55 black-owned banks in America.
To deal effectively with this problem, we suggest the federal government use a portion of the fines levied on Goldman Sachs, Wells Fargo and other banks to create a sizable ($100 million) capital fund to create and invest in black banks. 
This would be the best tribute to Ms. Walker.

Sunday, August 13, 2017

Why we need a Global ICO Census and Database

The Securities and Exchange Commission’s (SEC) recent report defines tokens sold through ICO offerings as “securities.” This is neither appropriate nor in the public interest. This definition will restrict the ability of startups to raise much needed capital without having to go to commercial banks, investment banks and venture capitalists, institutions who long ago abdicated their role in providing capital to deserving startups and small businesses. (Commercial banks, investment banks and venture capitalists focus on providing capital to a narrow group of non-minority and non female firms. As Uber and others (Google?) have shown, many of the women who dared work for these commercial bank, investment bank and venture capitalist supported firms found themselves harassed..and we know what happened when they sought funding.)

In a press release, the SEC concluded that anyone using "..distributed ledger or blockchain enabled means for capital raising (needs) to take appropriate steps to insure compliance with US federal securities laws.” This determination is inappropriately broad, and is sure to be overturned in Court, since the SEC does not have direct authority over currencies.

As we note in our report (https://www.prlog.org/12655138-creative- investment-issues- initial-coin- offering-ico-report.html) ICOs have features that resemble crowdfunding, venture capital and IPOs. They are simply a new tool for doing what Title III of the JOBS Act should have done - sourcing capital to innovative startups in an efficient way. Title III allows all companies with less than $1 billion in sales to raise up to $1 million dollars in equity or debt. This section of the JOBS Act was designed, as I note in my book, to create eBay-like sites that allow you to post your idea for a commercial venture online and then allows investors to purchase equity shares or stakes in it. Title III has, since 2016, in aggregate generated slightly over $50 million in committed capital. The law was signed in 2012. So far in 2017, ICO issuers have raised over $1 billion.

The SEC may have legitimate questions about the classification of ICOs, but their action simply confirms that regulators are protecting entrenched social and financial interests (not the public) from a new financial technology (blockchain) with almost unlimited potential.

In attempting to bring ICOs under federal securities laws, the SEC states that "participating in unregistered offerings may subject participants to..criminal enforcement proceedings." Of course, this is only true if you are not Goldman Sachs, Wells Fargo or Standard and Poor's, institutions guilty of significant securities law violations before, during and after the financial crisis who have yet to be subject to criminal enforcement proceedings..

A key factor the SEC cites in its argument in favor of ICO regulation rests on “full and fair disclosure,” but Wells Fargo created two million fake accounts without disclosing this. If the SEC were actually concerned about the public interest, Wells would have faced charges immediately for violating disclosure regulations. Given this, one can legitimately question the public's ability, based on past performance, to trust the SEC to act in the public interest. As outlined this in our Transaction Cost Theory of the Financial Crisis, released in 2010, people are looking for financial instruments, institutions and regulators they can trust. The popularity of digital currency, decentralized structures and new ways of raising capital is, quite simply, the result of this lack of trust.

The nature of blockchain is such that this technology — not regulators — will win in the long term. It would be better for the SEC to recognize this and to simply call for ICOs to list on a globally centralized, publicly accessible database, maintained by the SEC, at no cost to ICO issuers, and with no penalties (other than fines for deliberately fraudulent registrations.)

At this point in the development of this marketplace, having a comprehensive database of all ICOs is more valuable and appropriate than subjecting these new firms to full and complete SEC registration. The agency can revisit this in, say, a year or two to determine if more comprehensive regulation is required, but for the next six to twelve months, this should be the regulatory position of the SEC with respect to the new ICO marketplace.

Tuesday, July 25, 2017

Branchless Banking Roundtable by Zhuoxi (Austin) Wu, Impact Investing Analyst


On July 24th, I attended a Branchless Banking Roundtable discussion sponsored by the Financial Services Innovation Coalition (FSIC) at the Rayburn House Office Building in D.C. 

Panelists include the Co-Founder of BankMobile, Luvleen Sidhu, Founder of Creative Investment Research, William Michael Cunningham, and the founder of HBCU Wall Street, Torrence Reed. The moderator was the founder of FSIC, Kevin B. Kimble. During the hour-long discussion, they discussed issues related to the inefficiency of bank branches, the problem of bank transaction fees, and how newly developed technologies can change people’s way of banking.

The discussion kicked off with agreement among the panelists that bank branches are no longer a necessary part of people’s banking experience. Based on statistics, bank branches are, on average, only getting one account opened each week per branch, which equals 52 accounts opened a year at each branch. Apparently, the influence of bank branches on people’s banking habits has diminished. 

Mrs. Sidhu, the founder of BankMobile, noted she designed her company to target the underbanked, millennials, and middle-income Americans. She offers an entirely fee-free checking account for each of her clients. The fee-free guarantee includes the following: no minimum balance requirement, no direct deposit requirement, no transfer fee, etc. (There is a fee when a user withdraws money from ATMs that are not owned by BankMobile.) Considering that millennials nowadays transfer money much more frequently (that is why apps like Venmo are popular among the younger generation), the free transfer feature is viewed as a major benefit.

Mr. Cunningham echoed the idea that regulations are pushing people away from using bank services. He talked about Nigerian digital money service provider ‘Paga’, a mobile banking service provider like BankMobile. With smartphone penetration rates getting higher everywhere in the world, branches will likely suffer, generating lower revenue. This got me thinking about the Wells Fargo scandal, where the bank notoriously opened 2 million fake accounts, as a clear example of why the existence of mobile banking services like Paga threaten branch banking.

Mr. Cunningham then described the Initial Coin Offering (ICO) as a way for young entrepreneurs to fund their ideas. An ICO is a way to raise startup funding (mostly Bitcoin or Ethereum) by issuing your own currency, in our case, SRI coins. Investors who choose to invest in your ICO are either: speculating the rise of cryptocurrencies, or: investing in your idea in exchange for future service from the ICO issuer. What makes an ICO so desirable is the fact that: it is totally unregulated.

Funding ideas come and go, going from venture capitalists, to borrowing money from the bank, or even asking for money from your friends or parents. These all take time, and timing is everything in creating a new business. With an ICO, you do not need to know who is investing in your business, you do not need to worry about explaining to your friends or your parents of why your business failed, if it does fail, but the most valuable factor in an ICO is it's unregulated nature. People can invest tons of money into a business with or without knowing the risks behind their investment. Although controversial, an ICO is indeed the easiest way for young entrepreneurs to fulfill their dreams. In 2016, over $1 billion has been raised via ICOs, compared to $600 million in venture capital.

After attending the discussion, I came away impressed by the progress regular people (like me) have made over the years, seeking to make our lives easier. It is because of new technologies that we can access capital in a much better way.

Friday, July 5, 2013

'Minority' Bank Designation Has Become Meaningless

We note with interest the designation of Urban Partnership Bank as a Minority Depository Institution. According to Crain’s Chicago Business, “The $1 billion-asset bank based on Chicago's South Side
(formerly South Shore Bank) is officially a minority lender despite an ownership dominated by Wall Street giants like Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.”

A Minority Depository Institution, as defined by Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), used to be a bank in which 51% or more of the common stock was owned by one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American.

The threshold now for MDI designation is a bank that meets one or more of the following standards:
  • 1.       51% or more of the common stock was owned by one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American.
  • 2.       51% or more of the members of the Board of Directors are one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American and the community the banks serves is primarily minority.
The FDIC expanded the MDI definitions because is says it found the old definition “ambiguous.” Now a bank that does not meet the ownership test can be designated an MDI if 51% or more of the directors on the board are members of those minority groups and the community the banks serves is primarily minority. This is how Urban Partnership Bank was able to obtain recognition as an MDI.

This means that any institution, no matter how discriminatory, can obtain this designation. The MDI designation is valuable because banking regulators use deposits in minority banks made by non-minority banks as evidence that the non-minority bank is not breaking the law by discriminating against racial minorities and that it (the non-minority bank) is meeting community credit needs.

The MDI designation originally helped Black-owned banks, whose historical significance was clear: they were created at a time when discrimination against Black people was legal in the US. They served as the only financial service providers to the community. Black banks do not now have the same level of significance to the Black or minority community today. They are too small to serve the community in any meaningful way. For example, they cannot serve as a line of defense against predatory lending. The result: banks like Wells Fargo are free to target wealthy black communities for predatory loans, in a nakedly discriminatory (and ultimately successful) campaign to strip wealth out of the Black community.

According to a June 12, 2012 article in the Washington Post, one Wells Fargo loan officer, “in sworn court testimony..described watching loan officers comb through heavily African American areas such as Baltimore and Prince George’s County, forging relationships with churches and community groups to sell their members (predatory) mortgages.” This same loan officer “processed loans for (Black) homeowners with sterling credit ratings with higher interest rates than they needed to pay.”

Of course, some will claim that the actions of a few bigoted individuals cannot mark an entire institution as racist. We disagree, and refer to the clear double standard concerning these matters, evidenced by the treatment of ACORN, after a few individuals at that non profit made mistakes.

What’s specifically relevant in this case is that Goldman Sachs, one of the owners of this newly designated “minority bank,” has a history of discriminatory behavior. The firm's bigoted attitude toward Blacks and women is described, in great detail, by author by William D. Cohan in Money and Power: How Goldman Sachs Came to Rule the World, a book released in 2011.

Cohan recounts the case of James. E. Cofield, Jr, an African American Stanford MBA who sued Goldman for discrimination in 1972. On December 6, 1987, a female employee filed another in a series of discrimination lawsuits claiming Goldman had "a hostile working environment in which women were demeaned." In March, 2010, yet another female employee filed a discrimination lawsuit. In September, 2010, three female former employees filed a class action lawsuit stating that Goldman "systematically discriminates against women in pay and promotion." 

This discriminatory behaviour appears to be ongoing. On Sunday, June 2, 2013, an article on Salon.com described a “series of racist and sexist ‘tips’ to succeeding at” Goldman Sachs. (http://www.salon.com/2013/06/02/wall_street_insiders_advice_for_interns_sleep_with_your_female_colleagues_then_brag_about_it/)

Goldman also has a history of manipulating financial data in order to support unethical business activities designed to maximize short term profit. In 2003, Goldman Sachs admitted that it had violated anti-fraud laws. In 2010, according to the New York Times, Goldman paid “$550 million to settle federal claims that it misled investors.” (http://www.nytimes.com/2010/07/16/business/16goldman.html?_r=0)

As part of that settlement, the firm “agreed to a judicial order barring it from committing intentional fraud in the future.”  As an investor in an institution that has received designation as a minority depository institution without actually being one, some may suggest that Goldman has violated that order.

At any case, Urban Partnership Bank’s designation eliminates an honest and ethical explanation of the “Minority Depository Institution” designation. As an analyst who has been producing statistical reports on women and minority banks for 30 years, this change also affects my ability to derive meaningful insights from bank performance data pre definition change and after the MDI designation change. It makes any long term statistical analysis meaningless, as I noted in the Minority BankMonitor, our annual review of the social and financial performance of minority banks.

More importantly, this change removes any real social meaning from the MDI status designation.
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Friday, May 10, 2013

On Black Banks

I saw an article recently on Black banks in the US that was filled with inaccuracies. It was a public relations piece for the banking industry, so I thought I would post something based on my 20 years of research experience in the sector.

1. What is the historical significance of Black banks?

They were created at a time when discrimination against Black people was legal in the US. They served as the only financial service providers to the community.

2. Do Black banks have the same level of significance to the Black community today? Why or why not?

No. They are too small to serve the community in any meaningful way. For example, they cannot serve as a line of defense against predatory lending. The result: banks like Wells Fargo are free to target black communities for shoddy loanshttp://www.washingtonpost.com/business/economy/former-wells-fargo-loan-officer-testifies-in-baltimore-mortgage-lawsuit/2012/06/12/gJQA6EGtXV_story.html

Some Black banks were trying to help: See:
http://twisri.blogspot.com/2008/03/racial-divide-in-mortgage-mess-carver.html

But most were not. See:
http://twisri.blogspot.com/2009/04/black-owned-bank-has-few-urban-loans.html

This is contrary to their original mission. See:
http://www.creativeinvest.com/research/mlkoninvesting.html

3. What factors contributed to the dwindling in the number of Black-owned banks?

Several factors, but the main one is a lack of vision. Let's face it, though. Greed is a factor, too: "Regulators in October (2008) concluded in a cease-and-desist order that one Black bank had poor standards for qualifying and documenting loans, and gave top executives excessive pay and perks. Two of the perks regulators targeted were a $6.4 million beachfront Santa Monica mansion Cohee used while in California and a Porsche SUV..." 

Really?

4. How would you characterize the experience of Black banks in America throughout their history?

They once served a critical role in Black economic development, but they were sidetracked by the factors listed above. 

5. How did the recent Great Recession impact Black banks?

Decimated most of them.

6. Do you believe Black banking institutions were given a fair shake with regards to the TARP program?

Perhaps, but one Black bank got the most: http://www.washingtonpost.com/wp-dyn/content/article/2010/08/11/AR2010081105561.html

7. What is the forecast for Black banks moving forward?

We will see the number fall to low single digits within 10 years.
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Thursday, March 24, 2011

Jury Hits Wells Fargo With $3.5 Million Lending Discrimination Class Action Verdict

Mar 23, 2011. According to recent news reports, "After a three-month trial, a Los Angeles Superior Court jury returned a $3,520,000 lending discrimination verdict today against Wells Fargo Bank. (Opal Jones, et. al v. Wells Fargo Bank, N.A., Wells Fargo Home Mortgage, et. al Los Angeles Superior Court, Case No. BC337821)

The class action lawsuit alleged the bank consistently and knowingly discriminated against borrowers in minority neighborhoods, resulting in these borrowers paying more for their loans than borrowers in non-minority areas of Los Angeles County. The jury found that the race, color, ancestry and/or national origin of the plaintiffs and the class they represent was a 'motivating reason' for Wells Fargo’s conduct."


Wednesday, May 19, 2010

ShoreBank's Rescue Gives Community Lenders Hope

Summary version from The American Banker Newspaper. Wednesday, May 19, 2010. Story by Robert Barba.

Sources said early Tuesday that the struggling $2.3 billion-asset lender had secured $140 million in capital commitments, well exceeding the $125 million it needed to become eligible for a $75 million investment from the Treasury Department.

Though most of the companies on the roster have been solid supporters of community development financial institutions, Goldman Sachs Group Inc. and General Electric Co.'s GE Capital were two newcomers. They also were among the biggest investors in the group, kicking in $25 million and $20 million, respectively.

Another headline investor in ShoreBank is Citigroup Inc., at $20 million. Others include Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., U.S. Bancorp, Morgan Stanley, Northern Trust Corp. and PNC Financial Services Group Inc. Also on board were State Farm, the Ford Foundation and the John D. and Catherine T. MacArthur Foundation.

Though the commitments could signal renewed interest in helping out institutions serving the neediest communities, William Michael Cunningham, a social-investing adviser and the founder of the minority bank fund MBF LP in Washington, said the unit of ShoreBank Corp. is the only struggling bank in the country likely to secure such aid.

"This just shows the power of their brand," Cunningham said Tuesday. "It is so impressive that they were able to get these guys to pony up. For other institutions … it would have been an impossible task."


ShoreBank, which has been described as the darling of President Clinton, has deep political ties, including with the Obama administration. Several sources, however, rebuffed speculation that the investments stemmed from political pressure. For instance, Bank of Montreal's Harris Bank said in an e-mail that it has "long recognized and supported ShoreBank's role in the Chicago community and can confirm that we are also assisting with their recapitalization effort."

Still, Cunningham said implicit political pressure, as well as reputational pressure, was probably exerted.

Whatever the investors' motivations, Cunningham said, without the investment, ShoreBank would not have survived. "If you are ShoreBank, you don't care if it is out of good public relations or if they are angels; they are doing it," he said.

For a year ShoreBank's credit problems have been eating away its capital. At March 31, it had $360 million in nonperforming assets and its total risk-based capital ratio had dwindled to 3.36%, leaving it critically undercapitalized. Rumors had begun to swirl in Chicago that regulators were starting an auction for its assets.

Analysts have said that a $200 million investment would be enough to solve ShoreBank's capital issues and give it room to absorb losses in its credit portfolio.

Copyright, 2010, American Banker Newspaper/Source Media.

Sunday, August 9, 2009

Wells Fargo sued for racially biased lending, again..

As we noted in June, Wells Fargo has a real issue.

Now, they have been sued by the State of Illinois. According to recent news reports,

"Illinois filed a lawsuit on Friday against Wells Fargo & Co. accusing it of discriminating against black and Latino homeowners by employing racially biased lending practices.

San Francisco-based Wells Fargo & Co. allegedly sold high-cost subprime mortgage loans to minorities while white borrowers with similar incomes received lower-cost loans, according to the lawsuit, filed in Cook County Circuit Court by Illinois Attorney General Lisa Madigan.

'As a result of its discriminatory and illegal mortgage-lending practices, Wells Fargo transformed our cities' predominantly African-American and Latino neighborhoods into ground zero for subprime lending,' Madigan said."

Wednesday, June 24, 2009

Black neighborhoods, churches targeted for "ghetto loans."

According to recent news reports,

"One of the nation's largest banks allegedly set up a special sales office to steer risky subprime loans to residents in Prince George's County, Baltimore city and other predominantly black communities..Wells Fargo Bank employees allege in a lawsuit. According to the sworn statements by two former loan officers filed June 1 in U.S. District Court of Maryland as part of a lawsuit being pursued by the City of Baltimore against Wells Fargo alleging discriminatory and predatory lending, bank employees targeted black neighborhoods and churches for the escalating-interest mortgages, which some in the office called 'ghetto loans.'

Many customers with sufficient income, credit and savings to qualify for fixed, lower-interest mortgages were still urged to take subprime loans..because the higher rates meant bigger profits for the bank: 'If a loan officer referred a borrower who should have qualified for a prime loan to a subprime loan, the loan officer would receive a bonus.' "

Thursday, February 12, 2009

Summary of House Committee on Financial Services Hearing (Tian Weng, Debby Su)

1. Topic: TARP Accountability: Use of Federal Assistance by the First TARP Recipients
2. Date and Time: Feb 11, 2009, 10:00 am – 1:00 pm
3. Place: 2128 and 2172 Rayburn House Office Building
4. Chairman: Mr. Barney Frank, Chairman of the House Financial Services Committee
5. Witness List:
Mr. Lloyd C. Blankfein, Chief Executive Officer and Chairman, Goldman Sachs and Co.
Mr. James Dimon, Chief Executive Officer, JPMorgan Chase and Co.
Mr. Robert P. Kelly, Chairman and Chief Executive Officer, Bank of New York Mellon
Mr. Ken Lewis, Chairman and Chief Executive Officer, Bank of America
Mr. Ronald E. Logue, Chairman and Chief Executive Officer, State Street Corporation
Mr. John J. Mack, Chairman and Chief Executive Officer, Morgan Stanley
Mr. Vikram Pandit, Chief Executive Officer, Citigroup
Mr. John Stumpf, President and Chief Executive Officer, Wells Fargo and Co.

Eight bank CEOs from companies receiving the first TARP funds testified before the House Financial Services Committee. All testified that they distributed fund received in a manner that they thought would increase financial market liquidity, expand credits and lending in either residential or commercial loan markets, and generate enough revenues to allow them to return money to investors and US tax payers. All cited figures to confirm that they were distributing funds to the places they intended to. They denied TARP was used for dividend distributions or employee compensation.

Mr. Pandit, of Citigroup, pledged to cut his salary to $1 a year until the bank returned to profitability and took personal responsibility for the “mistake” of even thinking about buying a new $50 million private jet after getting government financing.

Mr. Lloyd C. Blankfein, Goldman’s chief executive, acknowledged “public anger at our industry.”

Mr. Lewis, CEO of Bank of America, who occasionally grew testy and red-faced at questions about lending, told lawmakers that his bank had “every incentive to lend.”

In the end, they all agreed to greater accountability on how they are spending money from the $700 billion fund.

Lawmakers struck hard on the lending issues, describing situations in which their constituents could not get loans and situations in which the rates for certain types of loans, such as credit card business and car loans, increased after the injection of the government funds intends to solve the liquidity problem. Several asked the bankers why there seemed to be a disconnect between their lending figures and the hundreds of ordinary people who continue to line up for loans. Some criticized bailout recipients like Bank of America and Merrill Lynch, who have continued to lobby--through trade associations--to block consumer protection measures, predatory lending regulations, and the Employee Free Choice Act, a measure that would ensure workers the freedom to form a union for a voice for improved wages, benefits, and working conditions.

Beyond the Troubled Asset Relief Program (TARP), some bailout recipients--who have failed to provide affordable healthcare or a living wage to their employees--are dipping into federal coffers through the backdoor, forcing thousands of employees to seek healthcare through taxpayer funded programs like Medicaid and forcing employees to apply for food stamps.

One lawmaker even suggested that banks paid fees to themselves for receiving TARP funds. Mr. Pandit denied such fee transaction. Another lawmaker pointed to the fact that top management at Bank of America received huge bonuses for the Merrill Lynch merger, when they were, in fact, actually responsible for losses that resulted from or were necessitated by the merger.

Tian Weng, Debby Su
George Washington University
Washington, DC

Monday, April 28, 2008

Racial Inequities in Sub-Prime Loan Practices

According to NorthStar Asset Management, Inc. and Responsible Wealth, a project of United for a Fair Economy, both based in Boston, Massachusetts:

"According to Federal Reserve data, 53.7% of (Wells Fargo) purchase loans to African-American families were "high-cost" versus 17.7% to white borrowers."

Data reported by Wells Fargo under the Home Mortgage Disclosure Act (HDMA) showed that "African-Americans were 3.69 times, and Latinos were 1.82 times more likely than whites to receive a high cost loan in 2006. A lawsuit filed by the City of Baltimore this year finds 65% of Wells Fargo's African-American borrowers in that city received high-cost loans."

"For the mortgage industry as a whole, racial bias in high-cost loans has been rampant. A report from United for a Fair Economy, in January 2008, detailed racial disparities in expected losses from foreclosure of sub-prime loans made during the past eight years."