Liability issues raised in cybercrime fight

In a world where headlines about hackers breaching major U.S. companies' computer systems show no signs of stopping, President Barack Obama wants businesses to start sharing more information about cyberthreats with the federal government.

Moynihan (L) at Friday's summit (Justin Sullivan/Getty Images)

Which raises an obvious question: Why aren't companies already turning over more information to help the government go after hackers?

The reason, the Obama administration has indicated, is fear of liability.

As Obama pushes for companies turn over more cybersecurity intelligence with the government, he is also proposing that companies be given liability protection for such sharing.

Last month, the administration proposed legislation, which Congress has yet to pass, granting companies such protection. On Friday, the same day the White House held a cybersecurity summit at Stanford University in California,  the Obama administration reiterated its proposal to provide liability protection.

Even if Congress grants such protections, it's unclear whether that will encourage the kind of information-sharing the Obama administration is looking for. According to various media outlets, Silicon Valley remains wary of having a closer relationship with federal intelligence agencies, a reluctance not helped by the leaks of National Security Agency contractor Edward Snowden.

Facebook, Google and Yahoo did not send top executives to the summit, even though they were invited, a snub experts say illustrates the strained relationship between the tech industry and the White House.

On Friday, Obama signed an executive order designed to encourage companies to share cybersecurity-threat information with the federal government and one another. It remains to be seen whether that will result in companies doing so.

Bank of America's CEO, Brian Moynihan, brought up the need for liability protection during Friday's summit. Moynihan was among top corporate leaders who participated in the event as panelists.

Moynihan said there should be more collaboration between the public and private sectors to deal with cybercrimes. But he also pointed to the liability concerns.

"We've got to figure out the liability structure," Moynihan said. "That will take law change."

Once protections are in place for companies that share information, he said, "you actually, I think, can then get that collaboration."

Meanwhile, stories about cybercrimes keep coming. On Saturday, The New York Times reported that Russian cybersecurity firm Kaspersky Lab disclosed an investigation into a cyberattack on more than 100 banks and other financial institutions in 30 nations. Kaspersky said that could make it one of the largest bank thefts ever, the Times reported.

The Moscow-based firm says that because of nondisclosure agreements with the banks that were hit, it cannot name them, the Times reported. (Update: Bank of America spokesman Dan Frahm tells me that the Charlotte-based bank is not among the affected.)

Moynihan to attend Obama's cybersecurity summit

When the Obama administration holds its "cybersecurity summit" at Stanford University today, Bank of America CEO Brian Moynihan will be among the top U.S. executives participating as panelists.

Moynihan

Moynihan and other leaders from major financial services companies, including the CEOs of PayPal, U.S. Bank and Visa, will speak on various panels at the daylong event in California.

The panelist list also includes representatives from other types of large corporations, such as the presidents of Walgreens and QVC. In addition, Tim Cook, CEO of Apple, is scheduled to deliver remarks during the summit.

The summit is being billed by the White House as an opportunity to bring together private and public sectors leaders so they can collaborate on ways to better protect U.S. consumers and companies against the growing threat from cyber-criminals. Top officials with the Federal Bureau of Investigation, Secret Service and Department of Homeland Security will also speak on panels.

Announced by the White House last month, the event comes at a time when data breaches continue to make national headlines, becoming a greater concern for U.S. companies. Just last week, Anthem, the second-largest U.S. health insurer, disclosed that hackers breached its computer systems that stored information on up to 80 million people.

Moynihan will sit on a panel titled "Improving Cybersecurity Practices at Consumer Oriented Businesses and Organizations." The panel will "explore what CEOs and their boards are doing to move cybersecurity concerns from the IT back-office, ensuring that this critical strategic issue is part of corporate planning, communications, governance, and operations for consumer-oriented business across all sectors of our economy," according to the White House.

JPMorgan Chase & Co.,  Citigroup and Wells Fargo, which in addition to Bank of America are the top four U.S. banks, will not have participants on any panels.

Banks large and small say costs are rising to protect sensitive consumer and bank data. Last month, in a Bloomberg Television interview, Moynihan said the bank’s cybersecurity operation can spend as much as it needs to protect the lender and its customers.

WSJ: BofA's government-backed subsidiary financed trades

Bank of America for years used its government-backed U.S. banking subsidiary to finance billions of dollars in controversial trades for clients of its European investment-banking arm, The Wall Street Journal reported today, citing internal documents and people familiar with the matter.

SAUL LOEB - AFP/GETTY

Last year, the bank's Merrill Lynch unit "quietly" started phasing out the use of funds from its U.S. banking subsidiary to finance transactions that, among other things, helped hedge funds avoid taxes on stock dividends, according to the Journal story.

Merrill Lynch began using the subsidiary's funds to finance the transactions for its clients roughly three years ago. In an email today, a Merrill Lynch spokesman told me that it no longer uses the subsidiary, Charlotte-based Bank of America National Association, to finance so-called "dividend arbitrage."

The transactions worked like this: Bank of America National Association would make secured loans to clients to finance the purchase of stocks. Those stocks could be owned in a jurisdiction where the tax rate is lower than the rate in other jurisdictions. As a result, the withholding taxes on the dividends could be substantially lowered, saving millions of dollars in taxes. The loan itself would be secured by the stocks.

Dividend arbitrage is legal in other countries but not in the U.S.

Bank of America largely runs the strategy from London.

"Like others across the industry, we do offer services outside the United States related to dividend arbitrage through our broker dealer, Merrill Lynch International," the Merrill Lynch spokesman said in the email. The spokesman said Bank of America National Association and other affiliated entities never suffered losses from the transactions.

According to The Wall Street Journal story, experts said it is inappropriate for Bank of America to tap the entity holding federally insured deposits to finance risky investment-banking trades:

“I don’t think it’s an appropriate use,” said Sheila Bair , the former chairman of the Federal Deposit Insurance Corp. “Activities with a substantial reputational risk... should not be done inside a bank. You have explicit government backing inside a bank. There is taxpayer risk there.”

U.S. regulators have questioned Bank of America about its dividend arbitrage activities. In September, I reported that regulators asked Bank of America about the strategy during a routine examination of the bank.

At the time, a Richmond Fed spokesman told me in an email that the Fed "identified dividend arbitrage trading as an activity that required further examination of the risk and governance of the business." The bank cooperated with the Fed's examination of the practice, the spokesman said at the time.

Wells Fargo says it tracks 'engagement,' not 'happiness'

Well's Fargo's so-called "happy-to-grumpy" ratio is not being used to track either the happiness or the grumpiness of its employees, a spokeswoman for the lender told me today.

John Stumpf (AP Photo/Mark Lennihan)

While Wells Fargo CEO John Stumpf has referred to the ratio by that nickname, it is based off annual surveys that actually measure employee engagement and disengagement, the spokeswoman, Richele Messick, said.

"The happy-to-grumpy terminology that’s been used, it puts it into colloquial terms,” she said. “It’s (actually) a measure of engagement."

Recently, the ratio has been the focus of coverage by many news outlets ever since The Wall Street Journal mentioned it in a story last week.

According to the WSJ's story, big banks are "trying more than ever to monitor employee attitudes and values to avoid future problems" in the wake of the financial crisis, which has resulted in large fines, layoffs and losses for banks.

Regulators say they remain concerned about the culture on Wall Street years after the financial crisis.

In October, Federal Reserve Bank of New York President William Dudley said the government will have to consider breaking up large financial institutions if Wall Street doesn’t stop excessive risk-taking and breaking the law, according to another Wall Street Journal story.

Speaking at an investor conference in Florida on Tuesday, Wells Fargo's chief financial officer, John Shrewsberry, expressed skepticism that financial institutions could make quick changes to their culture to appease regulators.

"I mean, you can't turn to any group of people and say be happy and engaged," he said. "It doesn't work that way. So, I'll be curious to watch how other firms try and produce a durable, sustainable culture on a deadline."

Wells Fargo's culture, he said, has been "handed down from generation to generation. ... We celebrate it."

He said he does not know "how you come up with that in short order, which sounds like that's what ... the industry is expected to do.

"There is nothing wrong with attempting to do that. ... But I don't know how you spontaneously require tens of thousands of people firm by firm to follow in line behind what somebody says is now important if they have been behaving differently, maybe not badly but differently, prior to that."

San Francisco-based Wells Fargo determines its ratio from the results of a "team member connection" survey that Gallup administers to Wells Fargo employees each year, Messick said. The bank has conducted the survey for more than 10 years, she said.

Wells Fargo encourages its employees to take the survey, she said. Participation is voluntary, and responses are kept confidential, she said.

"The data from the survey gives Wells Fargo several different measures that help us assess our progress, as well as our areas of opportunity," she said.

Wells Fargo says the ratio in 2014 was 8:1, meaning eight engaged employees for every disengaged one. That compares with 7:1 in 2013.

Wells Fargo: Cheaper gas not fueling consumer spending

It's been hoped for by some businesses and economists that the recent decline in gasoline prices will free up money that consumers will spend elsewhere, giving a boost to the U.S. economy.

Shrewsberry

But according to Wells Fargo's chief financial officer, cheaper gas is not fueling gains in consumer spending.

"It's still good for the consumer, but it’s not leading to increased consumption in a way that people traditionally imagined," John Shrewsberry said Tuesday at an investor conference in Aventura, Fla.

Shrewsberry offered that analysis in response to a question about whether Wells Fargo's credit card customers are charging more to their cards as a result of gas prices being down.

"We're not seeing the savings at the pump translate into a ... commensurate uptick" in consumer spending, Shrewsberry said. "It feels at the moment that people are paying down debt or saving that surplus, which cycles back in as increased deposits at a bank like Wells Fargo."

Gas prices in the Charlotte area are still the lowest in the state, but they’re rising and likely will continue to drift up in coming months, my colleague Katherine Peralta reported today:

As of early Tuesday, it’s $2.111 for a gallon of unleaded regular gas in the Charlotte metro area, while a week ago it was $1.992, according to auto group AAA. Nationwide, the average gas price has increased every day for two weeks and is now $2.185 a gallon.

AAA says it expects gas prices to increase this month due to refinery maintenance and decreased production, The Washington Post reported Monday:

Consumers should expect to see the upward trend continue in the coming weeks as it is typical to see prices increase 30 cents to 50 cents per gallon between now and the spring when more people travel and there is growing demand for fuel.

Columnist criticizes Wells Fargo's happy:grumpy ratio

Last week, The Wall Street Journal reported on how Wells Fargo tracks a "happy-to-grumpy" ratio of its employees as part of measuring the bank's culture.

According to the WSJ's story, Wells Fargo's tool for measuring employee satisfaction comes at a time when big banks are emerging from years of large fines, layoffs and losses and, therefore, "are trying more than ever to monitor employee attitudes and values to avoid future problems."

Stumpf (Photo by Daniel Acker/Bloomberg)

Lucy Kellaway, a columnist for the Financial Times, took issue with the ratio in a column this week. (Update: Wells Fargo says the ratio is actually a measure of employee engagement versus disengagement, not happiness versus grumpiness.)

Kellaway questions whether workers who claim to be happy are really less likely to do bad things:

There are no numbers to prove it; neither is there any obvious reason it should be so. If what makes bankers happy is taking risks and making money, they will be even happier when they are up to no good — provided it results in lots of money falling into their laps. Furthermore, if you are the sort of person who thinks it fine to diddle your bank out of billions of dollars, you are not going to worry about giving misleading answers on a staff satisfaction survey.

Kellaway also writes that she doesn't buy that Wells Fargo's ratio last year was eight happy employees for every grumpy one.

According to The Wall Street Journal story, Wells Fargo says that's up from 7:1 in 2013 and 3.8:1 in 2010.

"I don’t believe for a moment that the happy outnumber the grumpy by eight to one among Wells Fargo’s 260,000 people, nor is it likely that a ratio could double in such a short time," Kellaway writes.

Here's more from her column:

Underlying it all is something even more basic. Should employers even aim to make their staff happy? I’m with Freud on this one. He said it wasn’t possible to make people happy; the best that could be hoped for was normal unhappiness. 

This should be the goal at work too. Banks, and all other employers, should try to become places where employees are not abnormally unhappy.

One Wells Fargo employee made national headlines last year for his unhappiness with the bank's pay.

That employee was 30-something Tyrel Oates, who in October sent Wells Fargo CEO John Stumpf a letter asking him to distribute more of the company's profits to its employees.

Oates, who at the time processed requests from Wells Fargo customers seeking to stop debt-collection calls, pointed out in his letter that the "vast majority" of the company's employees "barely make enough to live comfortably on their own."

At the time, Oates said he was making just more than $15 an hour as a full-time employee.

Ray Grace reappointed N.C. banking commissioner

Gov. Pat McCrory announced Monday that he has reappointed Ray Grace as North Carolina's banking commissioner, an office that comes with a four-year term.

The General Assembly still has to vote on whether to confirm the reappointment.

Grace

Grace became acting banking commissioner after Joseph Smith resigned in February 2012 to oversee the roughly $25 billion national mortgage settlement.

In March 2013, McCrory appointed Grace to serve what was left of Smith's term, which was set to end this upcoming March 31.

"Ray Grace is a tremendous asset to North Carolina's banks, and his extensive experience and past achievement are reflected in his work as commissioner," McCrory said in a statement Monday. "His continued service is greatly valued and appreciated."

The N.C. Bankers Association lauded the reappointment.

“As I travel the state, bankers continually praise the work being performed by the North Carolina Office of the Commissioner of Banks under the leadership of Ray Grace,” Peter Gwaltney, the bankers association president, said in a statement.

The North Carolina Office of the Commissioner of Banks charters and regulates North Carolina's state banks, trust companies and mortgage companies.