Saturday, February 3rd, 2018
WASHINGTON: In an unprecedented punitive action, the US Federal Reserve on Friday ordered troubled banking giant Wells Fargo to halt its expansion until it improves governance, following “persistent misconduct”.
As part of an agreement with regulators, Wells Fargo will replace four board members this year as it struggles to recover from a 2016 scandal in which it uncovered millions of phony accounts created without customer consent.
The Fed order restricts the bank from growing any larger “until it sufficiently improves its governance and controls,” and asks Wells Fargo to submit an action plan to the Fed within 60 days.
“We cannot tolerate pervasive and persistent misconduct at any bank,” outgoing Fed Chair Janet Yellen said in a statement, citing “recent and widespread consumer abuses and other compliance breakdowns”.
The bank prioritised growth over ensuring effective risk management and “the enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely,” Yellen said in what was perhaps her last official act as Fed chair.
Wells Fargo became engulfed in scandal in 2016 after admitting its employees had opened 3.5 million phony deposit accounts and lines of credit without clients' knowledge as part of high-pressure retail sales tactics the bank touted to investors but has since repudiated.
This led to damaged credit scores and millions of dollars in unjustified fees for customers.
Wells Fargo President and CEO Timothy Sloan said the bank will present a plan to the Fed with new compliance and risk management strategies, as well as a list of steps taken so far.
The company will then seek third-party review of the implementation of the reform steps no later than Sept 30, which will then be subject to Fed approval.
“We want to have this cap lifted as soon as possible. We're going to work very hard to ensure that's the case,” Sloan said in a conference call.
The bank is studying various measures, including potentially reducing some commercial accounts, to allow it to continue to operate and accept deposits from retail customers without the risk of violating the Fed's limit to keep asset size steady.
Sloan said a “very small number of customers” will be impacted by the measures but the financial impacts on the institution will be “manageable”.
“We are very confident that we are going to meet the consent order requirements while continuing to serve our customers' financial needs.”
Wells Fargo has paid US$185 million (RM719 million) in fines and offered redress to harmed customers.
In October, CEO John Stumpf stepped down in the wake of the scandal, which cost it the top ranking as the world's largest bank by market capitalisation.
The Fed specifically cited the need to strengthen oversight by the bank's board of directors, and sent letters outlining the failures to Stumpf and another former director.
Concurrently with the Fed action, Wells Fargo will replace three current board members by April and a fourth by the end of the year. — AFP
NEW YORK: US stocks plunged Friday on worries about rising interest rates following a better-than-expected jobs report as the torrid Wall Street rally that opened the year flamed out dramatically.
The Dow alone slumped more than 650 points, or 2.5% to 25,520.96.
Equity markets elsewhere were also weak, with Tokyo, London, Paris and Frankfurt all falling. The dollar gained on expectations of more Federal Reserve interest rate hikes, while oil prices slid.
But it was Wall Street itself where the moves were most dramatic, selling off on the latest indication of a tightening labor market.
The US economy added 200,000 jobs in January, with unemployment holding at 4.1%.
Equally important, hourly wages rose 0.3% from the prior month to US$26.74, putting worker pay up 2.9% compared to January of last year, the largest 12-month gain since June 2009.
“It has been quite a while since we have had the stock market in a 'good news is bad news' mode,” said Gorilla Trades strategist Ken Berman.
“Once again, this is 'good news' for workers, but it hints that wage inflation is taking hold, and that can be 'bad news' for the stock market. It gives the Federal Reserve a 'green light' on more rate hikes this year, and that historically makes the stock market nervous.”
Analysts have been eyeing a recent increase in US bond yields that accelerated further on Friday following the jobs data.
“What's been bothering the market is the speed with which they're going up,” Briefing.com analyst Patrick O'Hare said of higher Treasury yields.
“Everyone has to remember we had a very over-extended market,” O'Hare said. “You now have group think driving things the other way as the trading trends shifts.”
O'Hare said lackluster earnings added to the selling momentum, with some of the biggest US companies suffering dramatic declines after disappointing the market. Apple, Google-parent Alphabet, Chevron and ExxonMobil all fell more than four percent.
Troublesome headlines from Washington over the disputed release of Republican memo about investigations of Donald Trump's election campaign were “another negative news item”, but not the driver of Friday's selling, O'Hare said.
Jobs crutch for dollar
“The dollar clearly needed support this week, and January's impressive US jobs data has come to the rescue,” said research analyst Lukman Otunuga at FXTM online currency brokerage.
But analyst Craig Erlam downplayed the size of the gains by the dollar gains.
“Not an overly large move in USD when you consider size of beat on earnings and a small beat on NFP (nonfarm payrolls). Sign of USD unpopularity right now?” he tweeted.
The dollar has been struggling against its major peers recently.
With dealers betting on tighter monetary policy at the European Central Bank and preferable terms for Britain when it leaves the European Union, the euro and pound have been making gains against the dollar the past couple of weeks.
Key figures around 2200 GMT
New York – DOW: DOWN 2.5% at 25,520.96 (close)
New York – S&P 500: DOWN 2.1% at 2,762.13 (close)
New York – Nasdaq: UP 2.0% at 7,240.95 (close)
London – FTSE 100: DOWN 0.6% at 7,443.43 points (close)
Frankfurt – DAX 30: DOWN 1.7% at 12,785.16 (close)
Paris – CAC 40: DOWN 1.6% at 5,364.98 (close)
EURO STOXX 50: DOWN 1.5% at 3,524.97
Tokyo – Nikkei 225: DOWN 0.9% at 23,274.53 (close)
Hong Kong – Hang Seng: DOWN 0.1% at 32,601.78 (close)
Shanghai – Composite: UP 0.4% at 3,462.08 (close)
Euro/dollar: DOWN at US$1.2453 from US$1.2507 at 2200 GMT
Pound/dollar: DOWN at US$1.4116 from US$1.4263
Dollar/yen: UP at 110.18 yen from 109.39 yen
Oil – Brent North Sea: DOWN US$1.07 at US$68.58 per barrel
Oil – West Texas Intermediate: DOWN 35 cents at US$65.45 per barrel
COLOMBO: Sri Lanka has ordered a corruption investigation at its national carrier, including the controversial termination of a management deal with Emirates airline, the government said Saturday.
President Maithripala Sirisena has appointed a five-member panel to investigate the financial transactions of Sri Lankan airlines from 2006 to 2008, when the deal with Emirates was ended, a statement from his office said.
Sri Lankan, founded in 1979 as Air Lanka, was profitable until the government of strongman president Mahinda Rajapakse, who ran the country from 2005 to 2015, kicked out the Emirates management team.
The deal was cancelled in 2008 after Emirates refused to bump fare-paying business class passengers to give the seats to Rajapakse's family, who were returning to Colombo from London.
A furious Rajapakse removed the Emirates-appointed CEO of Sri Lankan from his post and put his brother-in-law, who had no aviation industry experience, in charge of the airline.
Since then, Sri Lankan airlines has sunk into the red, with an estimated loss of more than a billion dollars and debts of US$3.2 billion (RM12 billion).
Sirisena's office said he ordered the five-member panel to focus on the “termination of agreements between Sri Lankan airlines and Emirates, including reasons and ramifications thereof”.
Emirates paid US$70 million to buy a 43.6% stake in Sri Lanka's national carrier when it was privatised in 1998 and had a contract to fully manage the airline till it was forced to leave.
Emirates' share of the company was eventually bought by the Sri Lankan government.
A criminal investigation is already underway into the airline's purchase of new Airbus aircraft at a cost of over two billion dollars during Rajapakse's decade in power.
The mounting debt crisis at Sri Lankan airlines has forced the new government to seek international partners to inject capital and manage the airline, but there have been no takers so far.
The move comes amid allegations that Sri Lanka's new government, which came to power January 2015, has been slow to crack down on corruption under Rajapakse.
The government last week set up special courts to investigate charges of corruption amounting to billions of dollars under the former regime. — AFP
WASHINGTON: Outgoing Federal Reserve chief Janet Yellen said Friday she did not believe the major gains on Wall Street in recent months qualified as a “bubble”, but nevertheless warned investors to remain cautious.
Yellen, who leaves her post on Saturday and will be replaced on Monday by Jerome Powell, made the comments in an interview with PBS television before the Dow closed down more than 650 points, its biggest drop since June 2016.
“I don't want to label what we're seeing as a bubble, but I would say that assets valuations generally are elevated,” Yellen said, advising investors to “be careful to diversify in their investments”.
The US stock market has gained more than 30% since President Donald Trump took office a year ago, but on Friday, fears about rising interest rates following better-than-expected January jobs data led to the major dip on Wall Street.
When asked about the state of the US economy, Yellen said that “things are looking really strong” and highlighted the job market, “with wages beginning to rise at a slightly faster pace”.
The US economy added 200,000 jobs in January, with unemployment holding at 4.1% – its lowest level in more than 17 years.
When asked about Trump's decision not to renew her for a second four-year term at the Federal Reserve, the 71-year-old Yellen admitted she was “disappointed”.
“I would have liked to serve an additional term and I did make that clear,” she said, in her first comments on the matter.
Named in 2014 by Trump's predecessor Barack Obama to lead the Fed, Yellen was the first woman to head the US central bank. Powell, a Republican former investment banker, will be one of the rare non-economists to fill the role. — AFP
KUALA LUMPUR, Feb 3 ― The ringgit’s movement next week is expected to be influenced by external factors, especially economic data from the US, dealers said. FXTM Research Analyst, Lukman Otunuga said key events would be the US jobs report…
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