Wednesday, February 25, 2015

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Investor website: Wells Fargo CEO is 'one of the best'

John Stumpf, CEO of San Francisco-based Wells Fargo, is “one of the best CEOs of our time," according to the headline of a column posted Tuesday to popular investor website Seeking Alpha.

Stumpf (Photo by Daniel Acker/Bloomberg)
The site features columns that offer financial analyses of public companies.

In the case of the Wells Fargo column, the writer points out that, among other things, the bank's stock price has risen more than 38 percent since May 2013, better than the S&P 500 Index’s rise of about 29 percent over the same period.

The column also notes that the nation’s fourth-largest lender has been increasing its dividend for the past four years.

Since the financial crisis, big U.S. banks must receive approval from the Federal Reserve to raise their dividends or buy back shares. Banks are expected to announce next month whether they have asked the Fed to let them to boost their dividends or buy back shares as part of their 2015 capital plans. In the past, the Fed has rejected some banks’ capital plans.

Wells Fargo’s quarterly common stock dividend is now 35 cents per share. The columnist expects the bank to get Fed approval to raise it.

Also, under Stumpf's watch Wells Fargo late last year became the most valuable U.S. bank ever, surpassing Citigroup 2001 record.

But Wells Fargo also has its share of challenges.

Like other lenders, it continues to cope with overall lower mortgage originations following lower demand to refinance home loans.

In addition, Wells Fargo's net interest margin, a key measure of lending profitability, has been hurt by sluggish loan growth and low interest rates. Net interest margin can shrink when deposits grow faster than loans. The margin has been squeezed at other banks, too.

Wells Fargo maintains an East Coast hub in Charlotte since its 2008 purchase of Charlotte-based Wachovia. Wells Fargo grew its Charlotte-area employment by about 1,400 positions last year, bringing the figure to 22,100.

Tuesday, February 24, 2015

'Cardless' ATMs can combat skimming but are rare

For readers who might be worried about "skimming" devices on automated teller machines after seeing my story yesterday on the increase in such scams in Charlotte, there is ATM technology available that could fight back.

Ed O'Brien
But so-called "cardless" ATMs are tough to come by, as only a handful of banks in the U.S. are making them available, according to one expert I talked to.

"It's in the early stages," said Ed O’Brien, a banking analyst for Maynard, Mass.-based Mercator Advisory Group.

Financial institutions are paying close attention to what other firms are doing before deploying the technology, O'Brien said.

"Everyone's watching everyone else," he said. "I think in the next probably year to two we'll see a lot more increased availability."

Cardless ATMs allow customers to conduct transactions without having to insert their cards into the machines. In theory, the absence of a card should reduce skimming, which involves criminals placing devices on ATMs to steal account data when consumers slip their debit or credit cards into the card reader.

One form of the technology works with smartphones. The phones scan a "quick response," or QR, code on an ATM, enabling a transaction to occur.

O’Brien said he's heard of roughly a dozen financial institutions who are either making that technology available, or expected to soon, in the U.S. He said one of those is ATM maker Diebold, which last year announced that Diebold Federal Credit Union would pilot the world's first ATM without a card reader or PIN pad.

O’Brien said he's heard of a couple of dozen other firms that are testing QR code technology, with plans to possibly offer it to customers by the end of this year.

Of course, not all ATMs are owned by banks. Some are owned by independent operators. O'Brien said it seems that only banks and credit unions are currently interested in putting the QR code technology in their ATMs, since the technology is tied into mobile-banking.

Bank of America and Wells Fargo are likely among the banks testing it, but "they've been very close to the vest" with their plans, he said.

Wells Fargo spokesman Josh Dunn said the San Francisco-based lender is "constantly evaluating ways to improve our customer’s ATM experience," but the bank has no comment regarding cardless technology at this point.

Bank of America spokeswoman Tara Burke said the Charlotte-based bank is watching changing consumer behavior "and will adapt to it." Bank of America is always looking at new technologies to make banking easier for its customers, she said.

Another type of ATM technology, which relies on biometric data such as fingerprints, is not yet being widely deployed as testing continues, O'Brien said. An ATM equipped with that technology could scan a customer's fingerprint to verify their identity.

O'Brien said he's not sure when consumers will start seeing broad use of biometric technology on ATMs.

"I know that the capabilities are available on some new-generation ATMs," he said. "The manufacturers are demoing those capabilities."

Skimming, which is also known to occur at gas pumps, is the most common type of cybercrime in the Charlotte region and is on the rise in the region, according to the U.S. Secret Service. That comes at a time when banks are reporting rising use of ATMs as they outfit them with more capabilities.

Monday, February 23, 2015

Ally CEO eyeing 'responsible' nonprime lending

Ally Financial's new Charlotte-based CEO says that while the Detroit auto lender is considering making more loans to people with nonprime credit ratings, he's not interested in ramping up lending to the riskiest of borrowers — those in the so-called "deep subprime" category.

Jeffrey Brown
"I want to be very clear: I have no strong appetite to go into deep subprime," Jeffrey Brown told me in an interview last week.

Since Ally named Brown its new CEO earlier this month, he has publicly discussed his interest in possibly boosting lending to nonprime borrowers. Brown says Ally has "underachieved" in the nonprime space and could have been "more aggressive" with that type of lending.

Those comments come at a time when Brown is seeking to boost profitability at Ally, which went public last year. His comments also come after Ally recently lost an exclusive lease agreement with General Motors, whose financing arm is replacing Ally as the exclusive lessor for Buick, Cadillac and GMC vehicles.

Brown said he might deploy the capital freed up by GM's pullback into nonprime lending.

Ally, which uses the deposits from its online-only bank to fund auto loans, has already come under scrutiny by federal authorities over subprime lending.

Last year, the company disclosed that it had received a Department of Justice subpoena as part of an investigation “related to subprime automotive finance and related securitization activities.”

Ally is among other lenders who received subpoenas from the Justice Department last year over subprime lending practices.

"All consumers need access to credit," Brown told me. "I think we (Ally) can do nonprime lending in a responsible manner and a responsible fashion that regulators would actually support."

"Deep subprime," by the way, describes a borrower with a credit score of less than 550, according to credit-reporting firm Equifax. A nonprime borrower has a credit score of 640 or less, while a subprime borrower has a score of 620 or less, according to Equifax.

Ally employs roughly 800 people in the Charlotte metro area, mostly at its South Church Street tower. Charlotte is one of a handful of U.S. hubs the company maintains.

Friday, February 20, 2015

Eric Holder asks lawyers to pursue bankers

Since the mortgage meltdown, some have criticized the federal government for failing to hold bank executives responsible.

Eight years after defaults on subprime mortgages helped spark the recession, are those critics about to get their wish?

Bloomberg reported this week that U.S. Attorney General Eric Holder is pressing for action against executives at firms that played a role in the subprime mortgage crisis, even as he prepares to leave his post.

Holder (AFP/Getty Images)
Here's an excerpt:
Holder, who is stepping down as soon as his successor, Loretta Lynch, is confirmed, has asked U.S. attorneys involved in residential mortgage-backed securities cases to report in 90 days on whether they can develop cases against individuals, he said Tuesday at the National Press Club in Washington. 

“That will be a report ultimately that will be given to Loretta to make determinations about whether further action is appropriate,” Holder said.
The story points out that Holder has faced criticism from lawmakers that the Department of Justice has not gone after bank executives to hold them responsible for their roles in the worst financial crisis since the Great Depression.

The Justice Department has also been faulted for resolving cases against banks with settlements that have allowed them to escape criminal charges by paying fines, improving controls and promising not to break the law, the Bloomberg story says.

Bank of America is among banks that have reached settlements with the government to resolve claims stemming from the mortgage crisis. In August, for example, the Charlotte-based bank struck a $17 billion settlement with the Justice Department over toxic mortgages. No individual at the bank was charged with a crime in connection with that case.

A Bank of America spokesman declined to comment.

Thursday, February 19, 2015

What others say about Brian Moynihan's pay cut

When Bank of America announced this week that its CEO was getting a 7 percent cut in compensation for his performance in 2014, it might have caught some people by surprise.

Moynihan (Photo: Davis Turner/Bloomberg)
After all, under Brian Moynihan's watch last year, the Charlotte-based bank reached a $17 billion settlement with the Department of Justice over toxic mortgages, a deal that removed a large legal cloud from the lender's head. On top of that, the bank last year announced that it had met the goals of Moynihan's sweeping cost-cutting program, "Project New BAC," months ahead of schedule.

But 2014 was also a year that saw the bank's earnings drop 58 percent from the year before, as that $17 billion settlement took a big bite out of the bank's profitability. It was also a year in which the bank had to delay a long-awaited increase in its quarterly stock dividend because it miscalculated its capital ratios.

The details of Moynihan's total compensation for his 2014 performance were revealed late Tuesday. (He was awarded $13 million, $1 million less than the year before.) Since then, I've reached out to analysts and others for their take on why it fell.

Some suggested Moynihan's compensation cut is a reflection of the bank's stock price not rising faster. (The bank's stock price climbed 13 percent during 2014. But the closing price of $16.30 Wednesday is far below the peak price of $50 in 2006.)

Others suggested the lower compensation might have something to do with the bank's decision in October to name Moynihan chairman. In that move, the bank took away a rare victory for shareholders who voted in 2009 to split the CEO and chairman roles over the fallout from the bank’s handling of its Merrill Lynch purchase. The decision to give Moynihan the chairman post has been unpopular with some investors.

Here's a look at comments various sources emailed me when I asked them what they thought about Moynihan's drop in compensation. Some comments have been edited for brevity and clarity:

"I assume that this is being done to offset the promotion of Mr. Moynihan to chairman." -Dick Bove, analyst with Rafferty Capital Markets

"My view would be that it's in recognition of the fact that they had yet another tough year. It's not a huge cut, but indicates to me that they felt they had to do something. (Also, the chairman appointment) was a controversial move. Perhaps this is in reaction to the controversy." -Nancy Bush, independent bank analyst

"Given the stagnancy of the stock price I am not surprised at the compensation decision." -Charles Elson, finance professor at the University of Delaware 

"The pay cut likely reflects the tougher year the company had. ... At the same time he was given $11.5M in stock grants, so if the bank executes well and profitability improves, he still ought to come out ahead." -Joe Morford, analyst with RBC Capital Markets

"We believe that the board and compensation committee should closely monitor executive pay at Bank of America to ensure that compensation is closely aligned with performance targets that focus on building shareholder value. ... While B of A's performance has improved over time, it still lags its peers in most important financial metrics." -Jonathan Finger, partner with Houston-based Finger Interests, which owns Bank of America shares

Tuesday, February 17, 2015

Wells Fargo raises fees on 'Value Checking' account

Here's some news that might upset some Wells Fargo customers.

The bank is increasing the monthly fee on its "Value Checking" account, as much as doubling it for some customers, a move the San Francisco-based lender said will make the fee the same across its customer base.

Wells Fargo said all customers who have a "Value Checking" account, one of Wells Fargo's basic checking accounts, will be charged $10 a month starting in April.

The impact of the increase will be bigger for some customers than others. Some customers have been paying $5, while others have been paying $7 or $9.

The fourth-largest U.S. bank said the change is part of its normal efforts to streamline and simplify older types of accounts and create consistency across the markets in which it does business. Until now, the monthly fees for Value Checking customers have varied depending on where they lived and when they opened their accounts, the bank said.

The change will have little impact in North Carolina, where there are a small number of Value Checking accounts, spokeswoman Richele Messick said. The company does not disclose its numbers of customers by account, she said.

The fee increase comes at a time when banks are under pressure by investors to boost their profitability. Wells Fargo reported earning $5.38 billion for common shareholders in the fourth quarter, up less than 1 percent from a year earlier.

The higher fee also comes after Wells Fargo, in October, began allowing customers to have more real-time information on their accounts, a change that has resulted in less overdraft-fee income for the bank. A drop in overdraft fees cost the bank $70 million in income during the fourth quarter compared with the third, according to a securities filing.

As it raises the fee, Wells Fargo also says it is giving Value Checking customers additional ways to have the fee waived. For example, the fee will now be waived if a customer makes 10 purchases or 10 payments a month with a Wells Fargo debit card.

Also, customers ages 17 to 24 will automatically be given a $5 discount on the fee each month.

Messick said the fee change will not affect the "vast majority" of Value Checking customers, who will now be converted to Wells Fargo's "Everyday Checking" account. Also, many customers already don't end up paying the monthly fee, because they meet requirements to get it waived, she said.

A look at other changes that will affect Value Checking customers:
  • Customers can waive the monthly fee if they maintain a minimum daily balance of $1,500. In the past, customers were required to maintain an average daily balance of $1,500 to have the fee waived.
  • The fee can also be waived if the direct deposits made into the account total $500 or more a month. That's a change from a requirement that a single direct deposit of at least $250 be made a month.