Bank layoffs, trade group mergers: Top banking news for August 2023

August 31, 2023 11:44 AM

In August's roundup of top banking news: The true cause of Heartland Tri-State Bank's failure, increased industrywide frugality among banks, two prominent credit union trade groups announce plans to combine and more.

Click here to read last month's roundup of banking industry news.

BMO recently informed California officials about plans for 248 layoffs; USAA told Texas officials in July of plans for 235 layoffs; and Wells Fargo notified Florida officials in July and August of its intention to lay off 105 workers in Orlando.

BMO, Wells Fargo and USAA are latest banks to report layoffs

Article by Kevin Wack

BMO Financial Group, Wells Fargo and USAA have reported hundreds of layoffs to state officials in recent weeks as the U.S. banking industry continues to downsize.

The job cuts come as banking executives express caution about the industry's growth prospects in the second half of the year, and as some banks divest certain parts of their businesses.

Between April 2021 and July 2023, total employment in credit intermediation jobs, which include loan officers and tellers at depository institutions, fell by 45,000 to 2.67 million, according to census data.

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The Federal Deposit Insurance Corp. said that Kansas-based Dream First Bank was acquiring all deposits and most of the assets of shuttered Tri-State Bank.

Al Drago/Bloomberg

Regulator: Failed Kansas bank 'victim of a scam'

Article by Jim Dobbs

The failure of Heartland Tri-State Bank in Elkhart, Kansas, was hastened by fraud, according to a state official.

"The bank fell victim to a scam," Kansas Banking Commissioner David Herndon told American Banker Aug. 4.

Herndon said that he was not privy to details such as who perpetrated the scam, but it was his understanding that a federal investigation was ongoing. He said Heartland self-reported the incident.

Kansas regulators seized Heartland on July 28 and appointed the Federal Deposit Insurance Corp. as receiver. It marked the fourth failure of 2023. The FDIC entered into a purchase and assumption agreement with Dream First Bank of Syracuse, Kansas, to assume all of the deposits and many of the assets of Heartland.

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Discover's board accepted the resignation of President and CEO Roger Hochschild on Aug. 13. He had been the company's top executive since 2018.

Michael Nagle/Bloomberg

Discover CEO's sudden exit follows a wave of compliance issues

Article by Kate Fitzgerald

Discover Financial Services on Aug. 14 announced that longtime Discover executive Roger Hochshild, who has been president and CEO of the Riverwoods, Illinois-based financial services giant for the last five years, is resigning from the company effective immediately.

John Owen, a 38-year banking veteran and a member of Discover's board, has been appointed interim CEO and president while Discover works with a global executive search firm to find a replacement, Discover said in a press release. Hochschild will serve in an advisory capacity through the end of this year, according to the release.

"The Board and Roger have agreed that now is the right time to transition leadership, and we thank Roger for his 25 years of service to the company," said Tom Maheras, Discover's board chairman, in the release.

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Citizens Financial, Capital One Financial and Synovus Financial are among the banks that have recently announced steps to shrink specific parts of their lending businesses.

Banks, usually hungry for growth, are now looking to shrink

Article by Polo Rocha

Bankers that long focused on growth have a new goal: getting smaller.

The goal isn't universal, as some banks still see opportunities and are picking up the pieces their competitors are leaving behind. But much of the industry is slimming down.

Bankers are tightening their underwriting. They're cutting back or calling it quits on riskier or less profitable businesses. And they're selling loans they no longer want, which helps them shrink their balance sheets and raise cash.

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Why private investors are scooping up small banks

Cardshow by Jordan Stutts

Market volatility and a tougher business environment for banks have established the conditions for private investors to scoop up small banks.

Sometime between Silicon Valley Bank's collapse in March and the private equity-backed purchase of PacWest Bancorp in late July, investors began moving on a number of community lenders that they may have seen as undervalued.

In Texas, separate investor groups are in the process of buying Eden Financial in San Angelo and Farmers State Bank in Shelby County.

In Cheyenne, Wyoming, a local acquirer is purchasing Wyoming Bank & Trust. And in Georgia, a group of unnamed investors from Jacksonville, Florida, is acquiring The Claxton Bank.

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Jim Nussle (left), president and chief executive of CUNA, would lead the combined CUNA and NAFCU provided members of both organizations approve the merger. Dan Berger (right), president and CEO of NAFCU, announced his plans to step down as head of the association earlier this year.

NAFCU, CUNA credit union trade groups agree to merge

Article by Frank Gargano

The National Association of Federally-Insured Credit Unions and the Credit Union National Association have agreed to a merger provided their members vote in favor of it.

NAFCU and CUNA, the two most prominent U.S. credit union trade groups, announced Aug. 1 that the combined organization would be called America's Credit Unions.

Jim Nussle, president and chief executive of CUNA, would lead the combined entity.

"By bringing together these two powerful credit union associations we are doubling down on our commitment to ensure the growth and prosperity of all credit unions across the nation and the 137 million Americans they serve," Nussle said.

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A judge's ruling last week blocking the Consumer Financial Protection Bureau from implementing a small business data collection rule could provide an opening for credit card issuers to block completion of a rule limiting a credit card late fee safe harbor to $8.

Samuel Corum/Bloomberg

Judge's CFPB data rule pause could open a lane for late fee rule opponents

Article by Kate Berry

Credit card companies are getting ready for a fight over the Consumer Financial Protection Bureau's plan to cut credit card late fees to $8 from the current rate of between $31 and $40 — a move that could wipe out 75% of annual bank earnings from late fees.

Trade groups have already said they will sue the bureau based on Administrative Procedure Act violations and other legal bases when the rule is finalized sometime this fall. But some analysts think the credit card industry may move sooner to block the rule's implementation because the Supreme Court is poised to decide whether the agency itself is constitutional sometime next year.

"They should all sue," said Alan Kaplinsky, senior counsel at the law firm Ballard Spahr. "If the CFPB were acting properly, they would decide not to finalize any regulation until after the Supreme Court has decided the case early next year. All the final rules — and that includes the credit card late fee regulation — should be put on ice."

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The credit card climate crisis

Article by Daniel Wolfe

The financial services industry ships over 3 billion new cards each year, according to ABI research.

That's enough plastic, laid end to end, to wrap around the planet more than six times. And issuers replace these cards every three to five years — leaving the old ones to sit in landfills for hundreds of years before they fully decompose, if they ever do.

Plastic leakage into the environment will almost double, to 44 million tons, in 2060, according to the Organisation for Economic Co-operation and Development. Most of that will wind up in the ocean and other aquatic environments, but it's also not great for humans. First-use plastic is produced from fossil fuels and contains highly toxic chemicals. As plastic breaks down, its components can be inhaled or ingested; mothers can even pass plastic along to a fetus through the placenta.

Despite these risks, most banks and credit unions plan to push out more plastic in the next five years, according to a July survey of 109 card issuers conducted by American Banker's parent company, Arizent, for this story. Thirty-eight percent of respondents said they plan to increase the number of physical cards they issue by up to 10%, and 31% said they plan an increase of more than 10%.

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Does the commercial lending slump hint at a looming recession?

Article by Sabrina Lee and Polo Rocha

Markets are optimistic that the Federal Reserve will achieve a "soft landing," but recent softness in commercial lending trends raises the risk that the country will slip into a recession, according to economists and analysts.

Bank lending to commercial clients — businesses big and small — has fallen from January highs as companies' wariness over the economic outlook persists. The outlook for loan growth isn't particularly strong either, thanks to a combination of reduced demand from commercial clients and tighter standards from banks.

That mix can damage the economy as businesses slow their expansions, hire fewer people and ultimately set off dominoes that will result in layoffs. The U.S. economy has proved to be surprisingly resilient over the past year, but the slowdown in commercial borrowing will be the latest test.

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BOWMAN-WALLER-JEFFERSON-FED-BLOOMBERG-080123

Fed Govs. Michelle Bowman and Christopher Waller (top right) voted against the risk-based capital proposal, raising questions about whether it's sufficiently tailored to the risk profiles of individual banks. Fed. Gov. Philip Jefferson voted for the plan but said the final requirements must be "informed by the potential impact on banking-sector resiliency, financial stability and the broader economy stemming from the implementation."

Capital reform is coming, but not without a fight

Article by Kyle Campbell

Federal regulators are poised to increase risk-capital requirements on large banks, but not before addressing some key criticisms of their proposal.

Leaders of the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency seem to be in strong alignment on new risk-based capital rules for banks with at least $100 billion of assets and they have — at least tentatively — enough support within their agencies to enact the plan.

But ensuring the rules — which would increase aggregate capital obligations within the affected banks by an average of 16% — are not scuttled by a legal challenge or congressional intervention could require regulators to address concerns raised by outside groups and members of their governing boards.

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