A few more updates on the ongoing banking fiascos: Wells Fargo and J.P. Morgan

October 2016 photo at Wells Fargo's museum in San Diego by James Ulvog.
October 2016 photo at Wells Fargo’s museum in San Diego by James Ulvog.

Odd development yesterday in the fake account fiasco at Wells Fargo. The OCC decided to get involved in lots of internal decisions at the bank.

The side fiasco of banks hiring relatives of clients in order to gain future business is off point from the banking fiascos I’ve been focused on. However, one settlement has caught my eye. Two articles describe the mess at J.P. Morgan.

11/18 – Wall Street Journal – Banking Regulator Imposes New Restrictions on Wells Fargo – Apparently the consent degree signed by Wells had some harsh language in it which was immediately waived by the OCC. On Friday the OCC unilaterally revoked their waiver.

As of now, Wells Fargo must get OCC permission before it hires or fires senior executives, before it make changes to the board of directors, and before making any “golden parachute” severance payments to executives. Advanced approval will be required to any changes in the bank’s business plans.

The one paragraph announcement may be seen here.

I’m not getting within a couple of light years of providing auditing or any other professional service to a bank, so I don’t know how to read that announcement.

Hints in the article suggest there may be new information driving this restriction. I hope so.

Article suggest the ‘change in business plan’ could carry over to getting preapproval of branch relocations. Even if the restrictions don’t go that far, this is an intriguing level of oversight into the operational details of a bank. I do hope this isn’t a de facto federal takeover.

Article reports that new accounts opened in October are down 27% from the previous month and down 44% from October 2015. This is significant, not only because of the drastic drop, but because October is the first full month after the settlement and thus the first full month showing the level of consumer reaction. That suggests a severe reaction.

Here are some articles on the fiasco of hiring relatives to influence major decision makers at potential client.

11/17 – Wall Street Journal – J.P. Morgan to Pay $264 Million to End Criminal, Civil Foreign Corruption Cases – This is a bit off-track from the typical banking fiasco I pay attention to, but it is close enough, so I will mention it..

In a Non-Prosecution Agreement the bank acknowledged it hired 100 people who were children of senior officials with hope the bank would soon have business dealings. There is even a name for this – the “Sons and Daughters” program.

The program was stopped in 2013. Comments in the article suggest the NPA and $264M fine will provide a template for resolution of cases against other banks still under investigation for the same type of behavior.

11/18 – Wall Street Journal – How a Chinese Company Pressed J.P. Morgan to Make Hires – Article explains how one insurance company that had an expected IPO on the horizon pushed Morgan to hire children and friends of the company’s senior staff. Insurer dropped a name, then later dropped another suggestion, then dropped another recommendation, and did so again. And again.

Article says that J.P. Morgan hired 222 people under the “Sons and Daughter” program.

Over seven years, Morgan hired eight people (interns and full-time) referred by the insurance company.

In the middle of the above timeline, one executive of the bank is quoted in an email as wondering how many more people the bank would have to hire.

The article walks through a list of the individuals hired after referrals by the insurance company. Two of the individuals were not fully qualified when hired compared to other potential hires and left after some sort of performance problems. Three other named individuals were not fully qualified, including one person majoring in psychology who did not understand investment banking. For another individual, the managers did not know what work they could assign to the individual.

The bank quantified the salaries paid for the eight individuals at $800k.

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