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Rep. Waters Probes Big-Bank CEOs on Downsizing Since Financial Crisis

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At a hearing Wednesday featuring CEOs of seven of the eight U.S.-based global systemically important banks, the House Financial Services Committee chairwoman worried that “several of these institutions are simply too big to manage their own operations, too big to serve our communities and too big to care about the harm they have caused.”

The chairwoman, Rep. Maxine Waters, D-Calif., grilled the executives on how the banks had tightened operations and diversified since the financial crisis of 2008. Notably, CEO James Gorman of Morgan Stanley cited the bank’s wealth management operation as a “stable foundation.”

During their testimony, the CEOs also agreed that cybersecurity is the primary risk facing the banking sector today, with another top concern being slower global growth.

The banks as a group, Waters said, “have paid at least $163.7 billion in fines since the financial crisis a decade ago, including for consumer abuses and other violations of the law.”

She then broke down those fines for each bank:

  • Bank of America has paid $76.1 billion
  • JPMorgan Chase has paid $43.7 billion
  • Citigroup has paid $19 billion
  • Wells Fargo has paid $11.8 billion
  • Goldman Sachs has paid $7.7 billion
  • Morgan Stanley has paid $5.4 billion

Waters argued that it “appears that they have treated those fines as simply the cost of doing business. All of the megabanks represented on the panel continue to rake in massive profits. Since the crisis, the megabanks have collectively made over $780 billion in profits, or nearly 5 times the amount they paid in fines,” and the CEOs have continued to be rewarded handsomely despite compliance failures on their watch.

Testifying at the hearing were Gorman; Michael Corbat, CEO of Citigroup; Jamie Dimon, CEO of JPMorgan Chase & Co.; Brian Moynihan, CEO of Bank of America; Ronald O’Hanley, president and CEO of State Street Corp.; Charles Scharf, chairman and CEO of Bank of New York Mellon; and David Solomon, chairman and CEO of Goldman Sachs.

Waters questioned the CEOs on their banks’ downsizing moves since the financial crisis hit a decade ago.

Corbat responded that Citigroup had downsized “considerably,” eliminating 70 business lines.

“Has it made management easier?” Waters asked.

Corbat responded: “Yes, it has.”

When asked the question, Dimon responded: “We every year look at … businesses that cause problems and close them down. So the answer is yes,” saying  17 lines of business had been eliminated since the financial crisis.

“Has it made management better?” Waters asked.

“Sure,” Dimon responded.

Morgan Stanley has “downsized a number of different businesses,” stated Gorman.

Gorman stated in his prepared testimony that in 2008, Morgan Stanley became a bank holding company and “set out on a strategy to diversify the firm so that we would be less subject to market instability.”

Since 2008, Morgan Stanley has “more than doubled the size of our wealth management business, giving the firm a stable foundation of support in any market environment,” Gorman said. “By building complementary franchises in institutional securities, wealth management and investment management, we reshaped Morgan Stanley over the last decade to derive a greater share of revenues from relatively stable businesses.”

In 2018, Morgan Stanley’s “wealth management and investment management businesses provided nearly half of our firmwide revenues,” he said.

Waters then probed Moynihan, asking if Bank of America also has downsized and “stuck to its core business?”

Moynihan responded: “Yes we have,” adding that doing so has “made it [the bank] more focused.”

“We eliminated a handful of businesses since the crisis,” added Goldman Sachs CEO David Solomon.

Cybersecurity, Slower Global Growth Top Worries 

The CEOs also agreed during the hearing that cybersecurity is the primary risk facing the banking sector today, with another top concern being slower global growth.

Cybersecurity “is the single most existential threat,” Gorman said, adding that Morgan Stanley spent $50 billion on cybersecurity last year and will spend “in excess” of $400 million this year.

Moynihan added that cybersecurity is his first concern with slower global growth his second.

In his prepared testimony, Dimon stated that over the last 10 years, “cybersecurity has become one of the most significant risks facing the bank, the financial sector, and the country as a whole. We have invested significant resources to effectively manage cyber risks and mitigate potential impacts to the firm, our clients and customers, and the financial sector.”

Because the financial system “is interconnected, and adversaries are smart and relentless,” Dimon added, “we must continue to be vigilant.”

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