Hurricane Matthew is definitely a fizzle, and promises to make most of the East Coast a fizzle in its own right over the next couple of days. About the only things that are sizzling in his wake are sales of lumber as people scrambled to board up their windows. We hope that everyone remains safe and out of harm’s way.
Back on drier, payments terra firma, we had our own crops of sizzles and fizzles this week.
Google’s foray into hardware earlier in the week sort of sealed the deal on the future of AI-inspired virtual assistants – as in, they are the future. For where Google stakes a claim, and some other juggernauts stake a claim, many other firms will follow.
The devices themselves are still in their infancy, but it is clear that the turf is being carved up by the big guys who have a lot at stake and who all have different views of how this will go down. Right now the war is a three-pronged one, with Apple, Amazon and Google all rushing deeper and deeper into the land of the spoken command. Thus far each of those marquee tech names has found a niche within their own fiefdoms. Google, of course, has carved a path in search, Apple in hardware and Amazon in eCommerce.
Now Amazon has Echo, Apple, Siri. And while those companies have a bit of a head start in AI, the competition is sure to expand and get heated enough so that the new features will come fast and furious across all these hardware offerings. And just yesterday (Thursday), it was announced that Samsung would be joining the fray, with an acquisition of Viv, for its own AI initiative.
Will it be “gllez-oop” for Allo? Time will tell, and while Google is embedding Allo in its new handset (yep, they’re back in the handset biz), Amazon’s Alexa is now moving into cars and onto the Fire device platform, and Siri may be…who knows where…the consumers ultimately may win. And we’ll see a day when personal, digital assistants can do much more than just answer queries about restaurants or movies or take directions about making phone calls
Small Business Optimism
OK, so the U.S. economy is gathering some steam, and small businesses are among the ones benefitting. As noted in some initial unemployment data posted on Thursday (though as of this writing, the big Kahuna, the jobs report, was due Friday), we’re at a multi-decade low in initial claims, and that speaks well to demand for workers. But there are also other signals that the firmament is firming for SMBs. As noted by our latest StoreFront tracker, wages were up more than six percent in the latest quarter, with other bits of sanguine info coming from the fact that interest rates are not headed toward an imminent hike. If rates still stay low, then input costs are still low enough to keep room for hiring.
In a sign that the best thing to happen to alt lending’s woes was the Wells Fargo crisis since it deflected attention away from it, it was reported last week that Prosper has exited the secondary trading market. No investor demand was cited as the reason for the abandonment. That does not auger well for the firm, or its environment, where a tough first half was the name of the game. Investors may be in the midst of pulling away from some of the formerly high flying names in the industry, and capital is, well, harder to come by than it once was. Secondary trading, like all secondary markets, is a form of liquidity. When liquidity dries up, then investors seek other avenues. That may have an impact on Prosper of course — with its name possibly a misnomer, should trends continue. There’s that fizzle word…
The CFPB dropped its ruling earlier this week and it landed with a perfunctory thud. On the one hand, it mandated a clarity of disclosures, which should make it easier for consumers to understand pricing and terms. That’s good. On the other, it bizarrely decided to treat stored value products, as in the products that have been marketed since forever, as substitutes for a DDA account as a credit product when overdrafts are triggered. It appears that the CFPB has decided that anyone who doesn’t want to have a bank account or can’t get one should pay a big price if they overdraw, ignoring the fact that most overdrafts are a few bucks for less than a day. Let’s now make banks underwrite a loan for $25 for 24 hours, shall we – and call that consumer protection. We call that fizzle, fizzle, fizzle.
Fizzle Of The Week: Wells Fargo
At the risk of being accused of understatement, Wells Fargo is not having a very good go of things. While it has not quite broken Lending Club’s record from this summer of longest consecutive number of days on the fizzle list, it has spent a rather unfortunate amount of time there since summer first started giving way into fall a few weeks ago.
As is well-known, Wells Fargo holds the distinction of being on the wrong end of the largest CFPB fine in history (~$100 million courtesy of the CFPB, plus another $85 million for the Office of the Comptroller of Currency) for creating over 2 million fraudulent accounts for customers that never asked for them.
Over a period of years. Consistently.
From there, things have gotten, well, increasingly brutal.
There was the first meeting with legislators — the Senate Banking Committee to be specific — where CEO John Stumpf managed to create one of Washington’s few moments of partisan agreement. Both Dems and Repubs held hands and called Wells Fargo’s corporate culture unacceptable and actively encouraged him to resign. Sen. Elizabeth Warren (D-MA) accused him of “gutless leadership.”
Throwing salt into the wound, Mr. Stumpf found himself back up on Capitol Hill the following week in front of the House Financial Services Committee. Among other things, Rep. Roger Williams (R-TX) actually asked him point blank during the meeting:
“When are you going to resign? I’m really angry.”
Williams followed up by marveling about all the things Stumpf claimed not to know about the bank he’s CEO of.
But even that wasn’t quite the low water mark for Wells Fargo’s CEO. It turns out the only thing worse than having all of Congress — who haven’t agreed on much over the last eight years — agree that you need to be fired is having the board of the bank you run extremely angry with you, too. Boards don’t typically like it when stuff like this surfaces and then wipes billions from the balance sheet. The stock is down nearly 19 percent since the scandal broke and has seen $20 billion wiped from its value. Stumpf now faces a radically dissatisfied board. They are so mad that they have clawed back $41 million in unvested equity from Stumpf, and he will work without a salary until the board’s independent investigation is over.
And Wells’ biggest shareholder, Warren Buffet? He’s been pretty quiet. He admitted to having spoken with Mr. Stumpf once, briefly, for about five minutes, and suggested that the fine was not illustrative of the real damage done.
Sort of like your mother telling you how disappointed she is in what you’ve done. You’d rather be yelled at.
Like we said, it’s been brutal.
And, as this week demonstrated, it doesn’t look like things are at any immediate risk of getting all that much better anytime soon.
As reported by Courthouse News Service, Wells Fargo will get to bust out its checkbook one more time to write a big check. That check — $163 million — is tied to allegations of fraud that Wachovia used certain securities as a “dumping ground” for assets the bank no longer wanted to hold.
Wachovia’s misdeeds are Wells Fargo’s problem since Wells bought out the bank as part of a government forced sale in 2008 to prevent Wachovia from failing.
So, the good news is that, in this case, Wells Fargo is less on the hook for ills it has done than ills it has inherited. But woes they remain. Several investment entities have sued Wells in New York, based on three collateralized debt obligations that defaulted in the wake of the financial crisis. That debt had been sold by Wachovia’s capital markets division.
The motion to proceed was granted last week in the U.S. District Court.
Also in the “good news in the bad news” file, the judge did dismiss the allegations that there had been a conspiracy to commit fraud.
You gotta take victory laps when you can
Say Hello To The DoJ (Perhaps)
Remember those legislators we mentioned earlier? As it turns out, they are determined to prove to Wells Fargo’s CEO that there are still worse things than the board being mad at you — there is also the possibility that orange may end up being the new black.
A group of Democratic senators has sent a letter to the Justice Department, urging it to investigate and, if necessary, prosecute the individuals behind the fake account scandal at Wells Fargo.
“A bank teller that takes a handful of bills from the cash drawer is likely to face charges for theft and prison time. She can’t hide behind an army of lawyers and corporate policies that diffuse accountability for those at the top. Meanwhile, an executive who oversees a massive fraud that implicates thousands of bank employees and costs customers millions of dollars can walk away with a hefty retirement package and millions in the bank.”
The senators had more to say, noting that, every time the Justice Department settles a case of corporate fraud without holding individuals accountable, it “reinforces the notion that the wealthy and powerful have purchased a higher class of justice for themselves.”
Senators Tammy Baldwin (D-WI), Richard Blumenthal (D-CT), Richard Durbin (D-IL), Al Franken (D-MN), Kirsten Gillibrand (D-NY), Angus King (I-ME), Amy Klobuchar (D-MN), Patrick Leahy (D-VT), Ed Markey (D-MA), Jeff Merkley (D-OR), Bernard Sanders (I-VT), Elizabeth Warren (D-MA) and Ron Wyden (D-OR) were all signatories.
Meanwhile, Congresswoman Maxine Waters (D-CA), the ranking member of the Committee on Financial Services, and 10 committee Democrats issued their own letter to financial regulators, urging them to strengthen a proposed “clawback” rule regarding when a financial institution must revoke senior executives’ bonuses.
In their letter, the House members underscored the need to strengthen rules regarding incentive-based compensation at financial institutions, as required by the Dodd-Frank Act.
“We do not believe that strong public policy goals are served by giving large banks and other financial institutions the choice as to whether to clawback executive bonuses in the face of widespread misconduct, such as the opening of more than 2 million unauthorized deposit and credit accounts,” the letter stated. “Given the reluctance of many boards of directors to punish peer-group members within the senior executive class, we believe that your agencies should require clawbacks in these instances.”
So, to recap, one House of Congress wants the rules rewritten to make sure your executive team should see their ill-gotten funds clawed back from them as a matter of federal law, which is actually the more moderate position since the other House of Congress would like to hand them a go to jail, go directly to jail card.
That’s a fizzle any way you cut it.