The Morning Risk Report: These Risks Wake Bankers at Night
By Gregory J. Millman
Cyber risk is the number one worry of bank risk managers, according to a panel of bank chief risk officers at the American Bankers Association Risk Management Forum in St. Louis last week, where overflow crowds have had organizers scrambling to relocate cyber-risk sessions to bigger spaces. Cyber-risk management is leading to operational changes at some banks. For example, the risk of a cyberattack through third party vendors is leading FirstMerit Bank NA to terminate its relationship with some of those vendors, said Brian C. Williams, executive vice president and chief risk officer at the bank, in a panel discussion.
But not far behind cyber is the challenge of convincing front-line managers that risk management is anything more than a bureaucratic impediment to dong business. “The front-line people are still evaluated on revenue performance, and when you bring risk into the discussion, it’s a direct conflict,” explained Ryan R. Rasske, senior vice president, risk and compliance, with the ABA. Steven G. Deaton, executive vice president and chief risk officer with State Bank and Trust Company in Atlanta said, “Lower, longer, looser lending – lower interest rates, longer terms, and looser covenants — we see that as an emerging risk and try to take a stand. You wonder about the short-term memory of bankers.”
At FirstMerit, Mr. Williams said that the bank is adopting tactics such as appointing risk liaisons in business units whose job descriptions include risk management, and embedding risk managers in areas where critical risks have been identified, such as mortgages in the consumer area. “Our biggest goal to take the program to the next level is to make sure risk management is perceived as bringing actual value,” he said.
EXCLUSIVE ON RISK AND COMPLIANCE JOURNAL
OECD appoints anti-bribery experts. A new high-level advisory group empaneled by the Organization for Economic Cooperation and Development to review the group’s efforts against bribery has some high-profile members. Among the people named to the group were Richard Alderman, former head of the U.K. Serious Fraud Office; Neville Tiffen, the former global compliance chief for Australian mining company Rio Tinto PLC; Richard Bistrong, a bribery convict who now speaks extensively about anti-bribery issues; and Huguette Labelle, the former chair of Transparency International, according to a person familiar with the matter.
From the Survey Roundup: Risk leaders. A survey of about 1,200 senior executives and board members by PwC about their organization’s risk management practices found only 12% have policies that would mark them as true risk management leaders. Rather than being a hindrance to the company’s success, of those firms cited as risk management leaders, 55% reported increased profit margins and 41% reported an annual profit margin of more than 10%.
COMPLIANCE
U.S. Chinese companies face legal risk. Major foreign companies and several Chinese Internet companies with U.S. stock-exchange listings are using a corporate structure in China in a way that may be rendered illegal under a proposed law. The Wall Street Journal, working with Dow Jones Risk & Compliance, identified companies that appear to be at risk from the proposed law. These include Chinese operations of Amazon.com Inc.,Pearson PLC and CBS Corp. They also include three major U.S.-listed Chinese Internet companies: Sina Corp., Autohome Inc. and Weibo Corp., which are threatened because foreign investors control them.
Obama suggests compromise on Iran sanctions. President Barack Obama suggested that Iran could receive significant economic relief immediately after concluding a deal to curb its nuclear program, a gesture toward one of Tehran’s key demands, the WSJ reports. Mr. Obama said such a move would depend on the final accord allowing international sanctions to be quickly reimposed if Tehran violated the agreement it is now negotiating with global powers. The administration has said the U.S. prefers sanctions would be lifted in phases as Iran meets certain requirements.
Comcast , Time Warner to meet with DOJ. Comcast Corp. and Time Warner Cable Inc. are preparing to meet with officials from the U.S. Department of Justice Wednesday in a session aimed at negotiating possible concessions to address concerns that the merger of the two cable giants will hurt competition, people familiar with the matter told the WSJ. The meeting would mark the first time the cable behemoths will sit down with regulators to try to hash out potential remedies in the more than 14 months since the $45.2 billion deal was announced, these people said.
Morgan Stanley may settle over mortgage bonds. Morgan Stanley is in talks to pay about $500 million to settle a probe by New York’s attorney general into whether the Wall Street firm misled investors in mortgage bonds that cratered during the financial crisis, people familiar with the matter told the WSJ. A deal with New York’s top litigator, Eric Schneiderman, would likely include some cash from Morgan Stanley as well as a chunk of consumer relief. The pact would clear up another headache for the New York firm and add to the $130 billion legal tab rung up by the largest U.S. banks for their actions during the crisis.
U.K. drops bribery charges against journalists. U.K. prosecutors on Friday dropped bribery charges against former News of the World editor Andy Coulson and eight others, a decision that effectively leaves in tatters a high-profile investigation of alleged illicit practices at British tabloids, the WSJ reports. The decision was announced hours after a London jury acquitted three other journalists of paying prison officers for information. That was the latest in a string of setbacks for prosecutors, who have managed to secure only a handful of convictions despite charging 29 reporters and editors over the past three years.
EU plans rules on troubled non-banks. The European Union is looking at creating rules on how to deal with financial firms outside the banking industry that run into trouble, including clearing houses, insurers and asset managers, the EU’s financial services chief said on Friday, Reuters reports. The 28-country bloc has already introduced rules on how to wind down troubled banks without turning to taxpayers for cash. It now wants a similar regime for other so-called systemic financial market participants.
Quicken sues DOJ, HUD over investigations. Long on the attack in mortgage-fraud cases, the U.S. government now finds itself the defendant in a lawsuit brought by one of the country’s largest consumer lenders, the WSJ reports. Quicken Loans Inc. late Friday sued the U.S. Department of Housing and Urban Development and the Department of Justice, alleging that it is a target of a “political agenda under which the DOJ is ‘investigating’ and pressuring large, high-profile lenders into paying nine- and ten-figure sums and publicly ‘admitting’ wrongdoing.”
China fines Alibaba over pricing. The Chinese government has fined Alibaba Group Holding Ltd. for pricing issues with products sold on its online marketplaces dating to Singles’ Day in 2013, the company said Friday, the WSJ reports. The company said it had been fined 800,000 yuan, or about $129,000, for pricing irregularities related to Singles’ Day in 2013 and 2014 and other promotions in 2013 and this year.
India bars securities firms. In a fresh crackdown on suspected tax evasion and laundering of black money through stock markets, Indian regulator Sebi barred 129 firms from the securities market, the Economic Times reports.
DATA SECURITY
Latest issues in information security. A Tuck marketing professor suggests how companies can make her and other consumers more cooperative when it comes to protecting themselves online. This is one article in a special report from the WSJ on information security.
Hackers tried to infiltrate sanctions talks. Hackers linked to the Russian government used previously unknown flaws in Microsoft Corp.’s Windows and Adobe Systems Inc.’s Flash to try to infiltrate discussions on sanctions policy, a person familiar with the attack told Bloomberg. The spying scheme was detected on April 13 by U.S. cybersecurity firm FireEye Inc. and targeted an agency of an overseas government that was in discussions with the U.S. about sanctions policy. The attack was halted before the group extracted any data, the company said in a blog post Saturday.
GOVERNANCE
Canada fund criticizes CIBC governance. Canadian fund giant Ontario Teachers’ Pension Plan has criticized the succession planning at Canadian Imperial Bank of Commerce and voted against the compensation of two of the bank’s former senior executives, the WSJ reports. In an emailed statement, Ontario Teachers’ said Friday it had concerns over the orderliness of a recent changeover in management at CIBC, which saw both Chief Executive Gerry McCaughey step down and Chief Operating Officer Richard Nesbitt retire earlier than expected.
Volkswagen holders seek to smoothe tensions. Key Volkswagen AG shareholders sought to cool down the debate about the company’s supervisory board and chief executive after a spat over its leadership unsettled Europe’s largest car maker, the WSJ reports. “All important persons involved endeavor to make the situation more objective,” said a spokesman for Porsche SE on Sunday. Porsche holds the majority of Volkswagen voting rights and is dominated by the Piech and Porsche families.
Shareholders want pay change at U.K. banks. Some major shareholders in U.K. banks want lenders to stop paying bonuses based on adjusted earnings that exclude fines, restructuring costs and non-core units, the Financial Times reports. “I’m really uncomfortable about banks paying themselves bonuses on the basis of core earnings, not statutory profit,” said a top-20 investor in Barclays and HSBC .
Nordstrom sued over plane use. Nordstrom Inc. has been sued in a lawsuit that claims the Nordstrom family has paid cut-rate fees for the use of company pilots and other aviation staff, Bloomberg reports. A Nordstrom spokeswoman said the allegations are baseless and disputed several assertions in the suit.
REPUTATION
BuzzFeed removed stories due to business pressure. BuzzFeed on Saturday disclosed that it had found three instances when complaints from business-side employees who worked with advertisers resulted in the deletion of articles, the WSJ reports. In a memo to staff first reported by Gawker, BuzzFeed Editor-in-Chief Ben Smith said that an internal review had revealed that the news and entertainment site had removed more than 1,000 posts for different reasons.
BMW recalls minis over air-bags. German auto maker BMW says it is recalling 91,800 Mini Coopers to fix a defect that may prevent the air bag on the front passenger side of the cars from deploying in a crash, the WSJ reports. The problem affects the 2005 to 2008 models of the Mini Cooper and Cooper S.
RISK
Chevron case to test racketeering law. Chevron Corp. will go head-to-head in an appeals court Monday with the lawyer who has tried for years to get the oil giant to pay a $9.5 billion environmental-damage award, the latest development in one of the longest-running legal battles in corporate history, the WSJ reports. At issue on Monday: a ruling made by U.S. District Judge Lewis Kaplan, who found last year that the multibillion-dollar award New York lawyer Steven Donziger won against Chevron in Ecuador was tainted by bribery and other corrupt misconduct. Mr. Donziger has denied the allegations of wrongdoing. Legal experts say the outcome of the appeal could clarify the scope of the federal anti-racketeering law Chevron used to sue Mr. Donziger.
HSBC, Standard Chartered consider quitting U.K. HSBC and Standard Chartered are looking at the viability of quitting London for a new home in Asia because a big jump in a tax on U.K. banks makes staying in Britain increasingly painful, Reuters reports. Several investors told Reuters they want the two banks to do a thorough analysis on whether it makes sense to move after Britain raised the bank tax by a third last month.
STRATEGY
Deutsche Bank may sell Postbank. Deutsche Bank AG’s executive board is leaning toward disposing of Postbank, a mass-market retail operation, and cutting around 200 billion euros ($216 billion) in investment-banking assets as it puts the final touches on a review of strategy, people familiar with the matter told the WSJ. The move would also mark the latest step by a global lender to slim down at a time of intense scrutiny from regulators and shareholders, both of whom are questioning whether universal banks are too complex for their own good.
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