Risk Events Report - Capital Perform

RISK EVENTS REPORT

February 2021

TABLE OF CONTENTS

• Introduction

• Overview

• Risk Events by Category

• Significant Management Changes

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R I S K E V E N T S R E P O R T F E B R U A R Y 2 0 2 1

P R O P R I E T A R Y

RISK EVENTS REPORT SUMMARY

Capital Performance Group tracks events at financial institutions and financial

technology firms across the country which could have risk implications for the industry.

This sample report focuses on events at large banks in the United States as well as

selected nonbank financial companies, fintechs, and payments companies.

Within each risk type, events are sub-divided into three categories based on the relative

significance of the event or the size of the fine or penalty levied against the institution in

question:

The report contains a recap of legislative actions, proposed regulatory rules and

enforcement actions among U.S. regulatory agencies involved in financial oversight.

Risk events are organized under eight types of risk for easy review:

1. Market/Interest Rate Risk – changes or potential changes to rates

2. Liquidity – changes to markets or regulations that could impact an institution’s

ability to fund its assets

3. Credit – instances of increased charge-offs or nonperforming loans in a particular

credit segment

4. Operational – when the failure of a system, process, or person results in a loss or

penalty

5. Fiduciary & Suitability – when an institution fails to act in the best interest of

either shareholders or clients

6. Regulatory Risk– when an institution is penalized due to noncompliance with a

law or regulation

7. Reputational – ongoing lawsuits/investigations and settlements of lawsuits

8. Strategic – changes in the competitive environment of a market that could impact

the ability of other institutions to meet their strategic goals

H I G H P R I O R I T Y

M E D I U M P R I O R I T Y

L O W P R I O R I T Y

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FEBRUARY 2021 OVERVIEW

NOTABLE RISK EVENTS (PAGES 8 -20)

Market/Interest Rate Risk (pg. 8):

• The yield on the benchmark 10-year Treasury

note rose to its highest level since the onset of

the pandemic. The yield was 1.525% on

February 25th.

Liquidity Risk (pg. 10):

• Some large commercial banks are taking steps

to discourage further growth in commercial

deposits.

Credit Risk (pg. 11):

• While the overall outlook has improved, bank

economists expect continued credit weakness

over the next six months, according to the most

recent Credit Conditions Outlook by the

American Bankers Association.

Reputational Risk (pg. 13):

• Some environmental groups and investors

focused on environmental, social, and corporate

governance (ESG) issues are attempting to

increase pressure on big banks to reevaluate

their financing of companies that make and use

the bulk of the world’s plastic.

N O T A B L E L E G I S L A T I V E & R E G U L A T O R Y E V E N T S ( P A G E S 4 - 7 )

• President Biden will seek a review by the Department of Justice (DOJ) regarding his legal authority to

write off student loan debt.

• The Federal Reserve and other financial regulators are moving to incorporate climate risk assessments

in their supervisory activities, according to a research letter published by the Federal Reserve Bank of

San Francisco.

• The House of Representatives passed a $1.9T COVID-19 relief package.

Reputational Risk (cont’d):

• According to a recent Deloitte survey of finance

executives, ESG risks will intensify the most in

the next two years.

Strategic Risk (pg. 16):

• Bank of America Corporation’s wealth

management subsidiary, Merrill Lynch Wealth

Management, plans to double the number of

number of teams in Florida that serve clients

with more than $10.0MM to invest.

• Goldman Sachs Group Inc. is launching Marcus

Invest, a low-cost digital platform that

automatically rebalances individual’s wealth

across portfolios developed by the firm’s

investments committee.

• Recent actions by number of companies,

including Bank of New York Mellon Corp., Visa

Inc., Robinhood Markets, Inc., and Mastercard

Inc., are bringing digital currencies closer to

mainstream acceptance.

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R E G U L A T O R Y E V E N T S

1. President Biden will seek a review by the DOJ regarding his legal authority to write off student

loan debt. Reportedly, he does not favor a blanket reduction of $50.0K in student loan relief, but

prefers that relief above $10.0K should be more targeted, reflecting factors such as the borrower’s

income and other considerations.

2. The Federal Reserve and other financial regulators are moving to incorporate climate risk

assessments in their supervisory activities, according to a research letter published by the

Federal Reserve Bank of San Francisco. The letter notes that climate-related risk entails both

physical risks such as more destructive storms, as well as transition risk, such as changes in climate

policy and consumer preferences.

3. Acting Securities and Exchange Commission (SEC) Chair Allison Herren Lee called for the

agency to revisit disclosure requirements and guidance for public companies regarding board

diversity. Additionally, Lee launched a review of disclosure requirements and agency guidance in the

area of climate change. Earlier, the SEC stated that it would actively participate in the development of

U.S. and international disclosure guidelines regarding climate change.

4. The Consumer Financial Protection Bureau (CFPB) plans to delay the July 1st compliance date

of its general qualified mortgage (General QM) final rule. If the rule were to be finalized, creditors

would be able to use either the current General QM loan definition or the revised General QM loan

definition for applications received during the period from March 1, 2021 until the delayed mandatory

compliance date. The bureau is also considering whether to initiate a rulemaking process to revisit its

previously issued final rule related to Seasoned Qualified Mortgages.

5. The Federal Deposit Insurance Corp. (FDIC) announced the creation of a new position: chief

innovation officer. The position is aimed at helping facilitate relationships between banks and

technology. This is the most recent step in the agency’s previously announced effort to facilitate

digital adoption and technology use at banks.

6. Starting in February, the Small Business Administration (SBA) will only accept applications for

the Paycheck Protection Program (PPP) from companies with fewer than 20 employees for 14

days. The administration is also allocating $1.0B for loans in low- and moderate-income areas, and

easing other restrictions on who can borrow through the program. The PPP is set to expire as a whole

on March 31st.

7. The Labor Department announced that it will build upon a Trump Administration regulation that

governs advice provided by advisors related to rollovers from 401(K) plans into individual

retirement accounts (IRAs). The Prohibited Transaction Exemption (PTE) will hold advisers to IRA

owners to a higher standard when it comes to managing conflicts of interest. It will also give investors

who feel they have been given bad rollover advice the right to file a lawsuit or arbitration claim. The

PTE is meant to broadly align with the SEC’s Regulation Best Interest.

REGULATORY & LEGISLATIVE EVENTS

Regulatory Events continue on the next page.

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R E G U L A T O R Y E V E N T S , C O N T I N U E D

8. The Federal Reserve disclosed the assumptions for its 2021 stress-testing scenarios for the 19 of the largest U.S. banks. Under the most adverse scenario, the U.S. unemployment rate would rise by 4.0% to 10.75%, and the commercial real estate sector and corporate debt market would experience rising defaults.

9. Treasury Secretary Janet Yellen plans to create a climate “hub” within the Department of the Treasury, to coordinate efforts to address potential climate-related risks to the financial system. The move is part of the Biden administration’s effort across many government departments to address climate change and its impact on various industries.

10. The Department of Housing and Urban Development (HUD) withdrew an appeal filed by the previous administration to overturn a federal court order staying HUD’s Disparate Impact Rule under the Fair Housing Act. The rule shifted the burden of proof in disparate impact cases to plaintiffs. HUD is expected to amend or withdraw the rule.

11. The Office of the Comptroller of the Currency (OCC) released a self-assessment tool for banks to evaluate their preparedness for the transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates. The tool can be used by banks to evaluate their transition plan and monitor its execution.

12. The Federal Reserve Board extended a rule that allows certain bank directors and shareholders to apply for PPP loans for their own businesses. However, banks are prohibited from prioritizing the processing of PPP loans from directors or shareholders. The rule is effective immediately and applies to PPP loans made through March 31st.

13. The Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, will permit borrowers in forbearance plans as of February 28, 2021, to request an additional three-month extension. The agency also announced an extension of the moratorium on single-family home foreclosure activities through 1Q21.

14. Political support is divided over President Biden’s pick to head the OCC. Some are lobbying for the nomination of University of California Professor Mehrsa Baradaran. Others back Michael Barr, an Obama and Clinton administration alumnus. Both candidates are expected to pursue policies related to fostering racial equity and expansion of access to financial services among low-income communities.

15. The CFPB will resume data collection efforts related to the Home Mortgage Disclosure Act (HMDA) and the Credit Card Accountability Responsibility and Disclosure (CARD) Act, which were halted at the start of the COVID-19 pandemic.


Regulatory Events continue on the next page.

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R E G U L A T O R Y E V E N T S , C O N T I N U E D

16. The Federal Reserve will launch its interbank real-time payment service, FedNow, in 2023.

Previously, the Fed indicated that the service could have been launched as late as 2024. The initial

launch will include core clearing and settlement functionality, as well as other features such as a

request-for-payment capability and tools to support participants in their handling of payment inquiries,

reconcilements and certain exceptions.

17. A U.S. District Court denied the OCC’s motion to throw out a lawsuit filed by advocacy groups

seeking to overturn the OCC’s revised Community Reinvestment Act (CRA) rule. Advocacy

groups sued the regulator in 2020, alleging that its CRA rule undermined the intent of the Act.

18. The SEC named Satyam Khanna senior policy adviser on climate and ESG issues. Khanna has

previously served as counsel to former SEC Commissioner Robert Jackson Jr.

19. Despite significant policy differences, the bank regulatory agencies are still attempting to write

a joint rule updating the CRA, according to Federal Reserve Chairman Jerome Powell.

20. The White House extended through June 30, 2021 payment deferrals and a moratorium on

home foreclosures for Federal Housing Administration (FHA) and Veterans Affairs (VA)

mortgage borrowers.


Legislative Events follows on the next page.

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L E G I S L A T I V E E V E N T S

1. The House of Representatives passed a $1.9T COVID-19 relief package. Among other

components, the bill includes:

• Funding for vaccine distribution;

• Enhanced federal unemployment benefits of $400 per week through August 29th;

• Direct relief checks of $1.4K to individuals making less than $75.0K annually; and

• $350.0B in aid to state and local governments. Its passage by the Senate is likely.

2. House Financial Services Committee Chairwoman Maxine Waters (D-CA) and Senate Leader

Chuck Schumer (D-NY) sponsored a resolution calling for the cancellation of $50.0K of

federal student loan debt per person. The lawmakers urged President Biden to exercise his

executive authority to cancel student loan debt and ensure that no tax liability is assessed for the

debt cancellation.

3. President Biden officially withdrew Judy Shelton’s nomination to the Federal Reserve Board.

Biden has not yet named a replacement nominee

Market/Interest Rate Risk follows on the next page.

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Market/Interest Rate Risk continues on the next page.

2/28 The yield on the benchmark 10-year Treasury note rose to its highest level since the

onset of the pandemic. The yield was 1.525% on February 25th. By way of comparison,

the yield was 0.70% in October. The recent rise is seen as an indication of increased

optimism among investors regarding the strength of the economic recovery. Many

investors expect yields will stabilize in coming days. However, some warn that bond

markets are signaling a powerful economic recovery that could spark an acceleration of

inflation above the 2.0% average rate set as a goal by the Federal Reserve.


2/26 Household income rose 10.0% in January compared to December, according to the

Department of Commerce. The increase was the second largest on record. The increase

in January was almost entirely attributable to the additional household stimulus payments

that were part of a relief package passed by Congress in December.

2/24 Sales of new single-family homes rose 4.3% in January to a seasonally adjusted 923,000

units, according to data from the Department of Commerce. The increase was more than

twice the level forecast by economists. Low interest rates and high demand continue to

boost the market.

2/23 In testimony before the Senate Banking Committee, Federal Reserve Chairman Powell

said the U.S. should see a robust recovery once the pandemic is under control, but the

economy is a “long way” from the Fed’s goals of maximum employment and 2.0%

inflation; therefore, the Fed will continue to adhere to its low-rate policies for the

foreseeable future.

2/23 U.S. bank profits fell 36.5% in 2020 from 2019, according to a data from the FDIC. Net

interest income declined five straight quarters and the net interest margin remained at a

record low in 4Q20.

2/19 The National Association of Realtors reported that existing home sales increased 0.6% to

a seasonally adjusted annual rate of 6.69 million units in January. Sales have been

increasing even as contracts have been declining. Economists polled by Reuters had

forecast that sales would fall 1.5% to a rate of 6.61 million units in January.

2/17 U.S. consumer retail spending rose across the board in January, even across industries

hardest hit by the pandemic. Retail sales (at restaurants and online) increased 5.3% in

January from December. That also marked the largest monthly increase since June,

when the sector was rebounding from the initial pandemic lockdown. Spending also

increased 20.0% among customers who make less than $60.0K a year.

2/12 Consumer sentiment fell to 76.2 points in February, according to a survey from the

University of Michigan. This marks a sharp drop from last February’s 101 points.

Households with incomes of less than $75.0K were found to be particularly pessimistic

about their financial futures.


MARKET/INTEREST RATE RISK

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2/11 Federal budget deficits are projected to soar over the next ten years. The Congressional

Budget Office (CBO) projects that the Federal debt will increase to a record 107.0% of

Gross Domestic Product (GDP) by 2031. The federal deficit equaled 100.0% of GDP for

fiscal year 2020. It was the first time since 1946 that the deficit exceeded economic

output. The projected deficit is slightly lower compared to the CBO’s forecast last

September, due to an improved outlook for economic growth. Despite the sharp increase

in federal deficit spending, the rate of inflation remains muted.

2/10 Small business optimism declined in January, according to an index from the National

Federation of Independent Business. Owners expecting better business conditions over

the next six months declined 7 points to a net negative 23.0%, the lowest level since

November 2013. The percent of business owners who think now is a good time to expand

was unchanged at 8.0% and job openings increased one point to 33.0% among

businesses with at least one unfilled position.

2/10 The Consumer Price Index (CPI) increased 0.3% in January, according to the Department

of Labor. The core CPI, which excludes volatile food and energy prices, was unchanged in

January for the second consecutive month. Overall year-on-year inflation was running at

1.4%, while year-on-year core CPI growth was at 1.4%.

2/9 Economists at Goldman Sachs Group, Inc. ($1.2T; New York, NY) raised their forecast

U.S. GDP growth in 2021, from 6.6% to 6.8%. They cited the likelihood of a larger than

expected stimulus package as the rationale for the higher growth rate.

2/5 The head of the International Monetary Fund (IMF) warned that the U.S. faced a possible

“dangerous wave” of bankruptcies and unemployment if it did not maintain fiscal support

until the COVID-19 heath crisis ended.

2/5 There are indications that the worst of the pandemic’s effects on the labor market have

passed. The national unemployment rate fell to 6.3% in January from 6.7% in December,

as the economy added 49,000 jobs, according to the Department of Labor. Private firms

added 174,000 jobs in January, with the biggest gains occurring in health care, social

assistance, and professional and business services sectors. Also, initial jobless claims

declined from their January peak, as several states eased restrictions on economic

activity. Job openings and hiring increased among small businesses in January, according

to a survey by the National Federation of Independent Business. However, the hiring is

uneven geographically and by industry and economists attributed some of the decline in

the unemployment rate to the fact that more people dropped out of the labor force.


MARKET/INTEREST RATE RISK, CONTINUED

Market and Interest Rate Risk continues on the next page, followed by Liquidity Risk.

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2/4 Most small businesses in the U.S. were adversely impacted by the COVID-19 pandemic

and minority-owned firms were hardest hit, according to a Federal Reserve survey. The

survey indicated that 57.0% of the respondents described their financial condition as “fair”

or “poor.” The figure jumps to 79.0% for Asian-owned firms and 77.0% for Black-owned

firms. Small businesses’ outlook for the next 12 months is mixed: 47.0% said they expect a

revenue increase, while 41.0% said they expect revenue to fall. Just over half expect

employment to hold steady, while just under a third said they expect it to increase staff in

the coming year.

2/1 Atlanta Federal Reserve President Raphael Bostic said that he is not worried about the

U.S. economy overheating, though he acknowledged that the growth rate could rise faster

than many expect. Bostic also said that the Fed may have to raise interest rates as soon as

mid-2022, which is much sooner then the Fed consensus.


MARKET/INTEREST RATE RISK, CONTINUED

Liquidity Risk continues on the next page, followed by Credit Risk.

LIQUIDITY RISK

2/11 Bank deposits increased by $100.0B between the end of December 2020 and the end of

January 2021. Deposit balances will likely increase further if the Biden administration’s

proposed relief bill is enacted.


2/24 Some large commercial banks are taking steps to discourage further growth in

commercial deposits. A survey of 40 large commercial banks by Novantas, Inc. found

that 72.0% had taken steps to actively discourage commercial deposit growth. The most

common strategy was to lower interest rates or rebates against treasury management

fees as balances increase. Approximately 26.0% of respondents had imposed strict

balance limits on clients, and 16.0% had suggested that clients place deposits at other

banks. Those actions were generally applied to higher-end commercial customers with

sophisticated treasury operations.


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2/25 Credit quality among large corporate syndicated loans has deteriorated. Approximately

12.4% of loans in the syndicated credit market last year were deemed “classified” or

“special mention”, according to a report by the Federal Reserve, the FDIC, and the OCC.

That was a significant increase over the 6.9% in 2019. The syndicated loan market is

approximately $5.1T large and grew 5.0% in 2020. Banks hold about 25% of loans

designated as classified or special mention. The oil and gas sector comprised the largest

portion of syndicated loans, totaling approximately $383.0B, of which approximately

23.3% were categorized as classified or special mention.


Credit Risk continues on the next page, followed by Operational Risk.

2/2 While the overall outlook has improved, bank economists expect continued credit

weakness over the next six months, according to the most recent Credit Conditions

Outlook by the American Bankers Association. Both the consumer and business credit

indexes remained below 50, with further deterioration expected over the next six months.

Index readings above 50 indicate that economists expect credit conditions to improve,

while readings below 50 indicate a deterioration.


CREDIT RISK

2/9 Money market participants are concerned that liquidity in the repo market, a major

source of overnight funding among money market participants, could be significantly

impaired unless the Federal Reserve extends the exemption of U.S. Treasuries and

excess reserves from the calculation of the supplementary leverage ratio of large banks.

Industry participants say that without an extension of the exemption, U.S. banks could be

forced to dramatically reduce their exposures of U.S. Treasuries, which would

significantly reduce liquidity in the repo market. The Federal Reserve instituted the

temporary exemption last April to ease leverage capital charges caused by ballooning

excess reserves and increased market-making in U.S. Treasuries by large banks.

JPMorgan Chase & Co. ($3.4T; New York, NY) said the expiration of the exemption could

force it to turn away deposits. The exemption is due to expire on March 31st.

2/2 Reportedly, Robinhood Markets Inc. (Menlo Park, CA) is seeking to raise another $1.0B

in bank financing to meet the collateral requirements of its clearinghouse. The

company’s revolving debt facility was fully drawn in late January, a period characterized

by heavy stock trading among Robinhood customers. The current discussions are

separate from the $3.4B in funding the company had already raised.


LIQUIDITY RISK, CONTINUED

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CREDIT RISK, CONTINUED

2/24 Capital One Financial Corporation ($421.6B; McLean, VA) began to raise the credit limit

on credit cards for its current superprime and prime customers. However, the bank will

continue to offer a reduced credit limit to new card customers. Last year, Capital One

was among the first banks to reduce credit card limits.

2/10 Spreads on high-yield U.S. corporate debt over Treasurys, which refers to the premium

that investors demand to hold the risky bonds over safer Treasury bonds, have returned

to pre-pandemic levels, as investors anticipate higher corporate earnings and an

improved credit outlook. The spread between the ICE BofA U.S. High Yield Index and

Treasurys fell to 351 bps, the lowest level since January 2020.


Regulatory Risk follows on the next page, followed by Reputational Risk.

OPERATIONAL RISK

2/25 An outage shut down all the Federal Reserve’s key payment systems for approximately

four hours. Systems affected included the Fedwire Funds Service, FedACH, and Fedwire

Securities. The Federal Reserve attributed the outage to an automated data center

maintenance process that was inadvertently triggered during business hours.

2/17 Robinhood Markets, Inc. failed to provide some customers their 1099 tax forms by the

date specified by the Internal Revenue Service (IRS). Frustrated customers took to social

media to complain about the delay, poor communication about the situation, and the lack

of customer support. Robinhood cited problems with a vendor as cause for the delay and

the company obtained a 30-day extension of the deadline from the IRS.

2/18 Reportedly, Robinhood Markets, Inc’s. decision to suspend trading in GameStop and

other stocks prompted a significant number of customers to move to competitors.

Acorns Advisers attracted 100,000 new customers in the three days after Robinhood

initiated its suspension. Other small, online brokerages reported marked increases in the

number of new customers.

2/16 A judge ruled that Citigroup Inc. is not entitled to recover $504.0MM that it mistakenly

transferred to Revlon Inc. lenders. The ruling could have a lasting impact on the role

administrative agents play in the syndicated loan industry by exposing them to higher

operational and regulatory risks. Citi intends to appeal the decision.

2/1 Cybersecurity threats present the greatest challenge to the financial services industry in

2021, according to a recent survey of banking executives conducted by core technology

provider CSI. More than 80.0% of bankers said they expect some form of social

engineering—including phishing scams targeting customers or bank employees—to be

the top cybersecurity threat this year. Ransomware attacks were the second most

significant cybersecurity concern.


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Reputational Risk continues on the next page.

REGULATORY RISK

2/27 Reportedly, Robinhood Markets, Inc. is in negotiations with the Financial Industry

Regulatory Authority (FINRA) to settle probes into the company’s options-trading

practices, as well as outages in its stock-trading app that occurred in March 2020. The

settlement could include admission of violating FINRA rules, a fine, restitution to

customers, and the hiring of a compliance consultant. Robinhood is also facing probes

from the SEC and state regulatory authorities.

2/8 A three-person FINRA arbitration panel in Boca Raton, FL ordered JPMorgan Securities

Inc., a JPMorgan Chase & Co. subsidiary, and two former brokers to pay $19.0MM for

unauthorized trading of complex products in a client’s account.

2/5 PayPal Holdings Inc. ($70.4B; San Jose, CA) announced that it was cooperating with the

CFPB regarding a civil investigation which alleges that its peer-to-peer payments app

Venmo allowed unauthorized fund transfers and collection processes. Venmo has been

accused of aggressive collections practices, threatening to dispatch debt collectors on

users who overdraw their accounts, even in cases that involve fraud.

2/4 The Federal Reserve announced the termination of an enforcement action with

Santander Holdings USA Inc. ($149.4B; Boston, MA) from 2017. The enforcement action

was one of three agreements the bank had with the Federal Reserve to strengthen its

oversight of Santander Consumer, the bank’s Dallas-based auto lending unit.


REPUTATIONAL RISK

2/11 Some environmental groups and investors focused on environmental, social, and

corporate governance issues are attempting to increase pressure on big banks to

reevaluate their financing of companies that make and use the bulk of the world’s plastic.

Activists contend that Bank of America Corporation ($2.8T; Charlotte, NC), Citigroup, Inc.

($2.3T; New York, NY) and JPMorgan Chase & Co. are among the largest lenders to

those companies and therefore are complicit in contributing to global plastic pollution.

2/1 According to a recent Deloitte survey of finance executives, ESG risks will intensify the

most in the next two years. ESG risk was followed by cybersecurity and credit risk. More

than half of the 57 firms surveyed were banks while the rest were insurers, asset

managers, and other financial-services providers.


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REPUTATIONAL RISK, CONTINUED

2/26 JPMorgan Chase & Co. and Bank of America Corporation will provide their employees

with eight hours of paid time off so that they can receive COVID-19 vaccinations.

2/26 Banks should adopt a 10-year time horizon for reducing climate risk in their lending

relationships, according to a report by Ceres, a nonprofit focused on corporate

sustainability. The report recommends that banks examine the entirety of their corporate

client relationships and work with them to develop plans for de-carbonizing their

business. Ceres concludes that, by taking a more holistic and long-term view, banks

have a greater chance of retaining those corporate relationships.

2/26 SVB Financial Group ($116.0B; Santa Clara, CA) is investigating a potential case of fraud

tied to a $70.0MM lending relationship. SVB believes that the incident is an isolated

occurrence involving a single business relationship.

2/24 A shareholder of Boston Private Financial Holdings Inc. (Boston, MA) is suing the

company and its board over its pending acquisition by SVB Financial Group. The lawsuit

alleges that the bank’s board authorized the filing of a “materially incomplete and

misleading” registration statement with the SEC.

2/23 Huntington Bancshares Inc. ($123.0B; Columbus, OH) is being sued by a shareholder in

regard to the bank’s pending merger with TCF Financial Corp. ($47.8B; Detroit, MI). The

lawsuit claims that the registration statement filed with the SEC fails to provide the

projected cash flows that Huntington and TCF could generate in the future.

2/23 To enhance racial equity, JPMorgan Chase & Co. launched several initiatives to

strengthen minority depository institutions (MDIs) and community development financial

institutions (CDFIs), including $40.0MM in equity investments in four minority-owned and

Black-led MDIs. The initiatives will provide additional capital, networking opportunities,

mentorship, and other training programs to minority-owned businesses. The bank also

announced a $350.0MM, five-year global commitment to grow Black, Latinx, women-

owned and other underserved small businesses. The investments are part of JPMorgan

Chase’s $30.0B commitment to offer an economic opportunity to underserved

communities, especially the Black and Latinx communities.

2/22 Reportedly, BlackRock, Inc. ($177.0B; New York, NY) will expand its training programs

and bolster its process for investigating employee concerns after former employees

shared accounts on social media of racial and sexual harassment.

2/18 The U.S. Climate Finance Working Group, a consortium of eleven financial trade

associations, released a set of principles intended to provide a framework to guide the

industry’s engagement with policy makers regarding solutions related to climate risk.


Reputational Risk continues on the next page.

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2/18 The CEO of Robinhood Markets Inc. apologized for the company’s decision to impose

limitations on trading in some securities, including GameStop Corp. His apology came

during his testimony to the House Financial Services Committee.

2/12 While it is pressuring companies worldwide to start planning for a net-zero economy,

BlackRock, Inc., the world’s largest asset manager, still has substantial investments in

fossil fuel companies, including coal producers.

2/11 Bank of America Corporation has committed to reducing its lending carbon footprint to

zero by 2050. The bank faced pressure from activist shareholders to explain how it

planned to meet the Paris Accord goals on climate change through its lending activities.

Bank of America follows Morgan Stanley ($1.1T; New York, NY) and JPMorgan Chase &

Co. in committing to achieving net-zero-financed emissions.

2/10 JPMorgan Chase & Co., Bank of America Corporation, and Wells Fargo & Company

($2.0T; San Francisco, CA) rejected an idea proposed by an activist investor to convert

their legal structure to that of a public benefit corporation. Public benefit corporations, a

Delaware legal structure, must balance stockholder interests with that of other

stakeholders.

2/8 Robinhood Markets, Inc. is being sued by the family of a former customer that committed

suicide after mistakenly believing he had incurred significant losses related to options

trading. The lawsuit alleges that Robinhood took advantage of inexperienced investors

instead of knowing its customers and ensuring that its trading strategies were

appropriate.

2/8 Total loans at the 25 biggest U.S. banks declined to 45.8% of total assets from 54.0% a

year ago. The percentages reflect loans made under the PPP. It was the lowest figure in

nearly 36 years of weekly data compiled by the Federal Reserve. The decline in lending

occurs at time when many businesses and consumers are struggling with economic

impact of the pandemic and the regulatory agencies have taken steps to encourage

banks to lend.

2/8 Citigroup Inc. will refund $4.2MM to credit card customers who had been overcharged

years ago. The bank reached agreements with the states of Pennsylvania, Iowa,

Massachusetts, New Jersey and North Carolina to refund the money. The refund follows

a related settlement reached in 2018 with the CFPB.

2/8 A report by consultant Bfinance found that 84.0% of investors think inconsistency in ESG

data reporting among asset managers is a major problem. Meanwhile, 46.0% of

respondents see ESG as highly important, 39.0% saying it is of moderate importance,

and 12.0% saying it is of minor importance.


Reputational Risk continues on the next page, followed by Strategic Risk.


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Strategic Risk continues on the next page.

2/4 Bank of America Corporation announced it would increase the level of funding for its

affordable homeownership initiative from $5.0B to $25.0B. JPMorgan Chase & Co. made

a similar announcement soon after, stating that it will double its Chase Homebuyer Grant

in an effort to foster homeownership among Black and Latino communities. Qualified

homebuyers across the country can now receive a $5.0K grant when purchasing a home

through JPMorgan Chase.



STRATEGIC RISK

2/26 Bank of America Corporation’s wealth management subsidiary, Merrill Lynch Wealth

Management, plans to double the number of number of teams in Florida that serve

clients with more than $10.0MM to invest. The expansion is aimed at capitalizing on a

migration to Florida among ultra-wealthy households. Merrill Lynch added more than

9,300 new clients in Florida during the past four years, accounting for about 10.0% of net

new household growth nationwide.

2/16 Goldman Sachs Group Inc. is launching Marcus Invest, a low-cost digital platform that

automatically rebalances an individual’s investments across portfolios developed by the

firm’s investments committee. The feature will be available to anyone with $1.0K in

account balances. This is part of a broader push by Goldman to serve the mass market

segment.

2/11 Recent actions by number of companies are bringing digital currencies closer to

mainstream acceptance. A number of institutions, including Bank of New York Mellon

Corp ($469.6B; New York, NY), Visa Inc. ($80.4B; Foster City, CA), Robinhood Markets,

Inc., and Mastercard Inc. ($33.6B; Purchase, NY), announced some combination of

initiatives to hold, transfer, or issue bitcoin and other cryptocurrencies on behalf of their

clients and customers. Mastercard Inc. and PayPal Holdings Inc. also announced they

would engage with certain central banks around the world to help launch and distribute

digital currencies. Robinhood Markets, Inc. will soon allow customers to deposit and

withdraw cryptocurrencies on its online brokerage app, allowing customers not only to

trade cryptocurrencies on the app but also to withdraw digital money for transfer to other

wallets. Additionally, Morgan Stanley Investment Management Inc. unit, Counterpoint

Global, is looking at Bitcoin as an option for its investors. JPMorgan Chase & Co. co-

president Daniel Pinto also expressed the company’s openness to the digital asset,

saying that JPMorgan’s decision would be based on client demand.


17



2/25 Toronto-Dominion Bank ($507.3B; Wilmington, DE) will close 82 branches in the U.S. TD

Bank CEO Greg Braca said investment in new branches may occur in the future, but he

recognized “the need for investment in digital and digital capabilities”.

2/25 Morgan Stanley CFO Jonathan Pruzan said that the retail activity and engagement levels

on the E*TRADE Financial Corp. platform have been “extraordinarily high.” Pruzan added

that the number of new accounts opened on the platform exceeded the combined total

number of accounts in 3Q20 and 4Q20.

2/25 JPMorgan Chase & Co. continues to pursue merger and acquisition deals with “perhaps

a greater sense of urgency,” CFO Jennifer Piepszak stated. “There are businesses like

asset management where scale matters even more than it did a year ago. And then other

businesses where the need to move quickly and to innovate quickly to keep up with

competition is certainly accelerating” Piepszak said.

2/24 JPMorgan Chase & Co. tested technology from the internet of things (IoT) by making

blockchain payments between satellites. The bank is preparing to process payments

when smart devices start conducting transactions with one another.

2/24 Square Inc. ($9.9B; San Francisco, CA) disclosed that 56.0% of its 4Q20 revenue came

from bitcoin trading through its platform, Cash App. Square plans to use some of the

revenue to further expand Cash App’s capabilities.

2/24 Wells Fargo & Co. officially exited the asset management business, selling its portfolio for

$2.1B. The bank will continue to offer wealth management and brokerage services.

2/23 MUFG Union Bank NA ($167.8B; New York, NY) launched green deposits for its U.S.

commercial and corporate clients. The bank will use the deposited funds to finance

projects focused on energy efficiency, renewable energy, green transports, and

sustainable agriculture and farming, among other things.

2/23 Morgan Stanley plans to move into the stock-plan management business in a bid to

attract and build long-term wealth-management relationships with younger customers.

2/23 HSBC Holdings PLC, parent of HSBC North America Holdings Inc. ($241.5B; New York,

NY) is exiting consumer banking in the U.S. as it cannot turn around its retail banking

unit in the country, which has made losses for the past three years. The bank is “in the

process of running down part of our book in the U.S. and Europe and reinvesting those

saved risk-weighted assets into Asia,” HSBC CEO Noel Quinn said. The bank plans on

contributing about $6.0B of investment into Asia in the next five years.

2/23 As merger and acquisition (M&A) activity increases, analysts expect that boards and

executive management of banks will be subjected to increased pressure from activist

shareholders to sell. Banks whose stock prices have not recovered from the effects of

the 2020 economic contraction could be most vulnerable to shareholder activism or

unsolicited overtures to merge.


STRATEGIC RISK, CONTINUED


18



2/22 Several mortgage lenders have reduced or postponed their initial public offerings over

concerns among investors that the housing market will slow down in 2021. Mortgage

rates are expected to gradually rise with the economic recovery and home price inflation

may begin to weigh on purchases. The Mortgage Bankers Association (MBA) is

forecasting a 49.0% decline in refinancing volume in 2021.

2/22 M&T Bank Corp. ($142.6B; Buffalo, NY) agreed to purchase People’s United Financial

Inc. in a transaction valued at about $7.6B. The combined company will have about

$200.0B in assets and 1,100 branches from Maine to Virginia.

2/22 Citigroup Inc. is considering divesting certain retail banking units in Asia-Pacific as a part

of the bank’s ongoing review of is international business. The affected areas include

South Korea, Thailand, the Philippines, and Australia.

2/18 Younger bank customers are the most likely to switch banks to gain access to better

digital features, according to a survey from digital consulting firm Mobiquity. The survey

found that 46.0% of customers under the age of 55 would be disposed to changing

banks for better digital features, compared to 27.0% of customers 55 years and older.

However, the survey also found that more attractive account terms are the primary

reason customers would likely switch banks and only between 11.0% and 17.0% of

customers actually switched their banking relationships during the past year.

2/16 While many banks have closed branches, some of the largest banks, such as JPMorgan

Chase & Co., Bank of America Corporation, and PNC Financial Services Group Inc.

($466.9B; Pittsburgh, PA) are selectively expanding their branch networks. Since 2015,

those banks have together opened branches in at least 15 metropolitan statistical areas

where they had no presence before. JPMorgan has opened 190 branches out of a total

of 400 planned new offices. The bank plans to open 150 additional offices in 2021. U.S.

Bancorp ($553.9B; Minneapolis, MN) also plans to open new branches after slowing its

expansion because of the pandemic.

2/16 Citigroup Inc. cut the compensation of outgoing CEO Michael Corbat by 20.7% for 2020.

The bank’s board noted this as a shared responsibility adjustment which impacted the

management team.

2/9 Wells Fargo & Co. announced it would retain its private-label credit card unit. The bank

had explored a potential sale last year.

2/5 Wells Fargo & Co.’s move to close its international wealth management business has led

to increased competition among firms to hire its advisers and gain access to its clients.

UBS Group AG, parent of UBS Bank USA ($87.3B; Salt Lake City, UT) and Morgan

Stanley are among firms looking to hire from Wells Fargo’s pool of approximately 330

advisers who were part of the international wealth business.




19



2/3 Citigroup Inc. launched an equity benchmark index family called Citi ESG World Indices,

the company’s first group of proprietary indexes that consider ESG metrics.

2/1 Digital engagement among customers has jumped at the biggest banks. Bank of America

Corporation reported that 70.0% of its consumer customers are digitally active and

17.0MM customers use the bank’s virtual assistant, representing an increase of 67.0%

from 2019. The bank’s person-to-person payments volume grew 80% in 2020 and

approximately 77.0% of the bank's wealth management clients and 70.0% of small-

business clients are digitally active. The bank attributes a significant portion of the growth

in active users to the Baby Boomer cohort. JPMorgan Chase & Company and Wells

Fargo & Co. have also reported at least 6.0% growth in the number of mobile users.

2/1 Social Finance, Inc. (San Francisco, CA) plans on utilizing the proceeds from its Initial

Public Offering to capitalize its bank and expand its financial services and technology

businesses. By 2025, SoFi anticipates that financial services will represent 32.0% of its

adjusted net revenues and the technology business will account for 25.0%, while lending

will fill in the remaining 43.0%.

2/1 Bank of Montreal, parent of BMO Financial Corp. ($185.1B; Chicago, IL) is offering its

employees paid time off to get the COVID-19 vaccine. The bank will also pay for certain

immunization costs not covered through public health plans or government agencies.

However, the company will not require its employees to take the vaccine, according to

the report.



Significant Management Changes follow on the next page.

20



SIGNIFICANT MANAGEMENT CHANGES

D A T E B A N K M A N A G E M E N T C H A N G E

2/28 Wells Fargo & Co. Promoted Genevieve Piche to managing director and head of ESG

solutions.

2/25 JPMorgan Chase

& Co.

Announced that chief executive officer of the Chase Consumer

Banking division, Thasunda Brown Duckett, is leaving the bank to

become the head of the retirement provider and financial services

firm TIAA.

2/25 Truist Financial

Corp.

Announced that President and COO Bill Rogers is preparing to

transition to CEO. After September 12, 2021, Rogers will become

CEO and Current Chairman and CEO Kelly King will become

executive chairman of the corporation and the bank until March

12, 2022.

2/22 HSBC Bank USA Named Michael Roberts chief executive of HSBC Bank USA, head

of the U.S. and the Americas, extending his responsibility to

Canada and Latin America. Effective April 5th, Roberts will

oversee all the firm’s business across the region which includes

HSBC’s wealth management and personal banking lines.

2/9 Goldman Sachs

Group Inc.

Appointed Swati Bhatia and David Stark to leadership roles in its

consumer banking unit. Bhatia was the former chief payments risk

officer at Stripe Inc. and Stark has been a Goldman partner since

2018.

2/5 Goldman Sachs

Group Inc.

Announced the resignation of Adam Dell who served as partner

and head of digital product for the consumer line of business.

Sonali Divilek was named head of consumer products, including

Marcus, to replace him.

2/4 U.S. Bank Named Scott Ford as president of Wealth Management Affluent.

Ford will oversee both U.S. Bank and U.S. Bancorp’s nationwide

network of U.S. Bank Wealth Management Affluent professionals.

2/2 United Services

Automobile

Association

Appointed Paul Vincent as President and Neeraj Singh as Chief

Risk Officer of USAA Federal Savings Bank.

21



NOTE ON THIS REPORT

T H E RE P O RT

This report is designed to provide information on events impacting a certain group of banks and

financial technology companies. It is not meant to be a comprehensive view of every fine or

penalty levied against any financial institution operating in the United States.

Events involving insurance or investment banking are not included in this report.

This report is based on publicly available information and there may be details related to mergers

and acquisitions, fines or penalties, and the settlement of lawsuits that are not publicly disclosed.

CPG has tried to capture as much detail available to the public as possible in our summaries of

events.

O UR S O URC E S

All information related to bank asset sizes and location comes from S&P Global Market

Intelligence.

In addition, we leverage a variety of sources in our work to track risk, legislative, and regulatory

events, including the following:

PUB L IC ATION S

▪ American Banker

▪ New York Times

▪ Financial Times

▪ Wall Street Journal

▪ S&P Global Market Intelligence

▪ News Summaries from Various Financial

Services Trade Publications

RE G UL ATORY PRE S S RE L E AS E S

▪ Consumer Financial Protection Bureau

▪ Department of Justice

▪ Federal Deposit Insurance Corporation

▪ Federal Reserve Board

▪ Financial Crimes Enforcement Network

▪ Department of the Treasury and other

federal agencies

▪ Financial Industry Regulatory Authority

▪ Office of the Comptroller of the Currency

▪ Securities & Exchange Commission

22



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www.capitalperform.com @CPG_DC

Documents

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