US banking regulators are “closely focused” on risks arising from commercial real estate loans that are putting pressure on some banks with heightened exposure to the industry, said Michael S Barr, the Federal Reserve’s vice chair for supervision, at a Columbia Law School banking conference on Friday.
Barr said that regulators are examining how banks manage commercial real estate loans, with a specific focus on risk assessment, risk mitigation actions, risk reporting to management and their financial preparedness for potential losses. This increased scrutiny comes as reduced demand for office space and higher interest rates create pressure on some commercial real estate valuations, particularly in the office sector.
His remarks follow the recent downgrading of New York Community Bancorp’s credit rating by Moody’s and Fitch due to concerns about its exposure to commercial real estate. NYCB posted a fourth-quarter net loss of $252mn and slashed its shareholder dividend to shore up its balance sheet. The US regional bank has stated its intention to reduce this exposure in the coming months.
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Morgan Stanley has been accused of creating a fake job title for one of its bankers in an attempt to deceive European regulators into believing it had moved senior staff to Frankfurt to comply with post-Brexit rules. The European Central Bank insists that international banks use local staff to manage their EU operations, rather than relying on London-based decision makers.
As reported by the Financial Times, a German banker, hired as an executive director in 2021 but since dismissed by Morgan Stanley, claimed to a Frankfurt court that he was given the title “head of loan trading” but allegedly told not to use it, as it “only existed on paper” and had been “created solely to meet regulatory requirements”.
While Morgan Stanley disputed the banker’s claims, a panel of three judges rejected its argument, stating the bank had failed to prove its former employee’s decision making role as a so-called “material risk taker” in its Frankfurt office. Morgan Stanley is appealing the decision, and although the public verdict did not name the bank, the FT, citing four anonymous sources, identified it as Morgan Stanley.
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Troubled Indian payments company Paytm saw a 5 per cent increase in its shares today, following a decision from the Reserve Bank of India to grant its banking subsidiary, Paytm Payments Bank, an extension to wind down operations to March 15. Additionally, Paytm also announced a partnership with Axis Bank on Friday, which will replace Paytm Payments Bank as the key facilitator of its merchant payments settlement business.
Earlier this year, the RBI ordered Paytm to cease the majority of its banking activities after discovering that the company had not conducted proper background checks on the source of its funds before onboarding clients.
The RBI’s enforcement action led to a 55 per cent decrease in Paytm’s market capitalisation, which was valued at $20bn when it went public in 2021. Paytm is one of India’s most popular payment providers; it serves over 15mn merchants and has 330mn wallet customers. As of year-end 2023, its cash reserves stood at more than $1bn.
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JPMorgan will pay around $350mn in fines to regulators for reporting incomplete trading data to surveillance platforms, it said in a regulatory filing on Friday.
In response to government inquiries regarding its trading processes, the bank stated that specific trading and order data from its corporate and investment banking unit had not been integrated into its trade surveillance platforms. The bank indicated that the $350mn civil penalties are expected to settle the issue with two US regulators and it remains in discussions with a third, although it did not specify the names of the agencies involved.
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HSBC intends to tighten risk management measures at its Hong Kong subsidiary, Hang Seng Bank, in response to concerns over a potential surge in non-performing loans amid growing economic challenges and an ongoing property sector crisis in China.
As reported by Reuters, Hang Seng’s top executives will be more closely involved in its parent’s Asia-Pacific risk management discussions regarding corporate, retail, wealth and private banking. Hang Seng’s exposure to mainland China’s property sector, which has been plagued by successive crises since 2021, has contributed to an increase in the bank’s bad loans in recent quarters.
