Daily Archives: February 6, 2015

JPMorgan under scrutiny over hiring of Chinese minister’s son: WSJ

(Reuters) – JPMorgan Chase & Co is under federal scrutiny over hiring the son of China’s current commerce minister, the Wall Street Journal reported, citing internal emails.

The investment bank hired Gao Jue, son of Gao Hucheng, despite several issues including his poor performance in job interviews, the Journal reported. (http://on.wsj.com/1D5Euhd)

JPMorgan’s decision to hire Gao was “widely understood” within the company to have been supported by William Daley, a senior executive at the time and a former U.S. commerce secretary and White House chief of staff, the Journal reported.

Daley worked at JPMorgan from 2004 to 2010 and reported to Chief Executive Jamie Dimon.

Gao Jue started work in the summer of 2007. He currently works at Goldman Sachs Group Inc, the report said.

Read on.

In J.P. Morgan Emails, a Tale of China and Connections

Gao Jue did poorly on his job interviews at J.P. Morgan Chase & Co., he messed up his work visa, accidentally sent a sexually explicit email to a human-resources employee and was described by a senior banker as “immature, irresponsible and unreliable,” according to internal bank emails and people familiar with the matter.

Yet the bank hired him, saved him during major job cuts and later was prepared to offer him another position if he had responded to their queries.

Mr. Gao is the son of China’s current commerce minister, who, when his son faced a layoff, said he was willing to “go extra miles” for the bank if it kept him on, according to a J.P. Morgan executive’s email account of a dinner with the father.

The bank’s decision to hire Mr. Gao was widely understood within J.P. Morgan to have been supported by William Daley, a senior executive at the time, according to the internal bank emails, which were reviewed by The Wall Street Journal. Mr. Daley is a former U.S. commerce secretary and White House chief of staff.

The hiring has drawn scrutiny from U.S. prosecutors and regulators who are investigating the Asian hiring practices of J.P. Morgan and several other banks, according to people briefed on the investigation. Mr. Gao’s name hasn’t previously been reported in connection with the hiring probe, which J.P. Morgan disclosed in a 2013 regulatory filing. Hong Kong authorities have also been investigating Western banks’ hiring practices.

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Morningstar Credit Ratings, LLC Removes Ocwen Financial Corporation from Alert and Lowers Operational Risk Assessment Rankings

NEW YORK, Feb. 6, 2015 /PRNewswire/ — Morningstar Credit Ratings, LLC today removed Ocwen Financial Corporation (OFC) from Alert and lowered its four operational risk assessment rankings as a result of continuing regulatory scrutiny and allegations of improper servicing practices. Morningstar lowered its residential non-prime servicer, residential prime servicer, and residential special servicer rankings for Ocwen Loan Servicing, LLC to ‘MOR RS3’ from ‘MOR RS2’ and lowered its residential vendor ranking for Ocwen Financial Solutions Pvt. Ltd. to ‘MOR RV3’ from ‘MOR RV2.’

Morningstar placed these rankings on Alert in December 2014 following an announcement that OFC reached a $150 millionsettlement with the New York State Department of Financial Services (NYDFS) related to deficient mortgage servicing practices and corporate governance issues. As part of the settlement, OFC Executive Chairman William C. Erbey agreed to step down effective Jan. 16, 2015.

In October 2014, the California Department of Business Oversight (DBO) accused OFC of ignoring repeated requests for information under the state’s 2012 Homeowner Bill of Rights and threatened to suspend OFC’s business license in California. On Jan. 23, 2015, OFC agreed to pay the DBO $2.5 million to settle these claims. As part of the settlement, OFC is subject to compliance review by a third-party auditor, which will assess OFC’s loan servicing procedures, processes, and staffing and report its findings to the DBO. OFC must develop an action plan to address any deficiencies noted in the report. In addition to covering the cost of recent settlements with the NYDFS and DBO as well as legacy settlements with the national Consumer Financial Protection Bureau, OFC will incur significant expenses for enhancing its internal compliance mechanisms for human resources and technology and compensating the third-party auditors mandated by the aforementioned settlements. OFC is also prohibited from acquiring additional mortgage servicing rights for loans in California without prior regulatory approval, a provision similar to the terms of OFC’s settlement with the NYDFS.

On Jan. 23, 2015, news outlets reported that OFC allegedly failed to comply with various mortgage-backed securitization agreements with affiliate Home Loan Servicing Solutions, Ltd. (HLSS), constituting an alleged event of default. OFC is a subservicer on HLSS servicer advance securitizations and a servicer on 119 HLSS private-label mortgage-backed securitizations. In this scenario, HLSS would face substantial liquidity pressure as the primary advance-funding source for OFC, and OFC could be terminated as a servicer.

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Wall Street Pays Bankers to Work in Government and It Doesn’t Want Anyone to Know

Citigroup is one of three Wall Street banks attempting to keep hidden their practice of paying executives multimillion-dollar awards for entering government service. In letters delivered to the Securities and Exchange Commission (SEC) over the last month, Citi,Goldman Sachs and Morgan Stanley seek exemption from a shareholder proposal, filed by the AFL-CIO labor coalition, which would force them to identify all executives eligible for these financial rewards, and the specific dollar amounts at stake. Critics argue these “golden parachutes” ensure more financial insiders in policy positions and favorable treatment toward Wall Street.

“As shareholders of these banks, we want to know how much money we have promised to give away to senior executives if they take government jobs,” said AFL-CIO President Richard Trumka in a statement. “It’s a simple question, but the banks don’t want to answer it. What are they trying to hide?”

The handouts recently received attention when Antonio Weiss, the former investment banker at Lazard now serving as counselor to Treasury Secretary Jack Lew, acknowledged in financial disclosures that he would be paid $21 million in unvested income and deferred compensation upon exiting the company for a job in government. Weiss withdrew from consideration to become the undersecretary for domestic finance under pressure from financial reformers, but the counselor positionwhich does not require congressional confirmationprobably still entitles him to the $21 million. The terms of the award are part of a Lazard employee agreement that nobody has seen.

These payments are routine at major banks, several of which have explicit policies, found in filings with the SEC, outlining automatic awards for executives who rotate into government. Goldman Sachs offers “a lump sum cash payment” for government service, for example.

Other banks’ policies are subtler. Banks often defer certain types of compensation in order to retain talent. When an executive terminates employment, unvested stock options and other forms of deferred compensation are usually forfeited. But several companies let executives’ equity options continue to vest if they leave for a government position, or allow them to keep retention bonuses that would otherwise be returned to the firm. A 2004 tax law banned accelerated payments but made an exemption for employees who leave for government service. Critics wonder whether the gifts are intended to fill the government with friendly faces who will act in their former employer’s interests.

“It fuels the revolving door between banks and the government,” said Michael Smallberg, an investigator for the Project On Government Oversight (POGO), whose 2013 report detailed these types of compensation agreements. The average executive branch salary is substantially less than these millions in awards, so the bonuses effectively supplement the lower pay, raising questions about who the government officials actually work for.

Citigroup is a serial user of these practices, if only because so many of its alumni serve in government. Jack Lew, Weiss’ boss at Treasury, had$250,000 to $500,000 in restricted stock vested after he left an executive position at the bank, part of a $1.1 million golden parachute revealed during the confirmation process. Stanley Fischer, currently the vice chair of the Federal Reserve, had a similar clause in his Citigroup employment contract. U.S. Trade Representative Michael Froman received over $4 million in multiple exit payments from Citigroup when he left for the Obama Administration.

Read on.

Faith-Based Shareholder Plans to Pressure Wells Fargo and Citi

A religious shareholder group that has in recent months pressured two of the largest U.S. banks into publishing reviews of their business standards, is out to repeat the feat at Wells Fargo WFC +1.48% and Citigroup C +1.52%.

The Interfaith Center on Corporate Responsibility will Friday afternoon have a teleconference with Wells Fargo officials to discuss the bank’s internal standards and the publication of details of them.

The organization, which represents groups with over $100 billion of invested money, is planning similar talks with Citi in the coming months, according to Seamus Finn, chairman of the ICCR board.

Mr. Finn said: “It would be helpful for us as investors and the general public to have one place to go to see what changes they’ve put in place since the 2008 financial meltdown.”

The ICCR declined to comment on the size of the collective stakes its members hold in Wells Fargo and Citi.

Read on.

San Francisco controller cautions against eminent domain

There are still small rumblings in the fight for eminent domain in California. According to an article in Bloomberg, San Francisco Controller Ben Rosenfield discouraged lawmakers from going forward with a proposal to use the city’s eminent-domain powers to help homeowners avoid foreclosure.

Richmond, California has been debating the feasibility of eminent domain for a while. Back in July 2014, the Richmond City Council rejected a resolution to terminate a contract with Mortgage Resolution Partners, the company that hatched a plan to seize underwater mortgages through eminent domain.

Eminent domain at its core is used to seize land to build public necessities like highways, electrical lines and public schools.

“The city’s participation in an eminent-domain program will likely have broader negative impacts on the city’s participation in financial markets, at least for an initial period,” San Francisco’s Controller Ben Rosenfield wrote in a report released Thursday.

Rosenfield conducted the study in response to a proposal from San Francisco Supervisor John Avalos to use the solution to help working class and middle class workers stay in the city of about 837,000, the article explained.

Instead, the controller suggested several other options, including a mortgage assistance program for borrowers of an emergency assistance program for homeowners.

Source: Bloomberg

Regulators in California, New York speak out against Coinbase ‘licensed exchange’ claims

This Monday, Coinbase Inc. launched what it dubbed the first regulated U.S. exchange and listed 24 states and one territory where the exchange would be available. Since the launch, however, at least two officials, in California and New York State, have come forward to say that Coinbase Exchange is not regulated in their states.

California Department of Business Oversight Commissioner Jan Lynn Owen said in a statement Tuesday, “The California Department of Business Oversight has not decided whether to regulate virtual currency transactions, or the businesses that arrange such transactions, under the state’s Money Transmission Act. California consumers should be aware Coinbase Exchange is not regulated or licensed by the State.”

And a spokesman for New York State Department of Financial Services Superintendent Benjamin Lawsky said, Coinbase has no license to operate in the state. Lawsky is best known for his New York BitLicense proposal, which has seen much criticism from the Bitcoin community and still does not exist in law.

“We are working with several companies, including Coinbase, on licensing and will continue to move forward expeditiously. That said, we have not yet issued any licenses to virtual currency firms,” said the NYDFS spokesperson in a statement Wednesday.

Read on.