Beijing hits brakes on subway boom over debt concerns

A member of security personnel stands on duty on an empty train platform inside a station on the Subway Line Number 1 in Beijing, China. (Reuters
Updated 15 November 2017
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Beijing hits brakes on subway boom over debt concerns

SHANGHAI: China has hit the brakes on subway projects in at least three cities and Beijing is asking others to slow down their plans, local governments and media have reported, indicating concerns over high debt from city-level infrastructure spending.
China has been in the grips of a metro-building binge with more than 50 cities working on over 1 trillion yuan ($150.8 billion) worth of projects, after population restrictions were loosened last year to allow more cities to have metro systems.
Such infrastructure spending has helped to shore up economic growth but is now being scrutinized more closely after the government pledged to clamp down on financial risks. Policymakers have warned about the risk of asset bubbles due to high levels of corporate and household debt in the economy.
China’s overall debt has jumped to more than 250 percent of GDP from 150 percent at the end of 2006.
Financial magazine Caixin, citing unnamed sources close to the matter, reported that authorities in Inner Mongolia’s Hohhot and Baotou cities have scrapped approved projects worth billions of dollars in recent months due to concerns over finances.
Xianyang city, which wants to build six lines to link up to central Shaanxi province’s capital of Xi’an, said in a statement this month some of its plans had not yet been approved by the state planner, the National Development and Reform Commission.
“The NDRC has become more cautious about approving metro construction plans and it will be difficult to achieve approval within the year,” it said, adding that one of the factors was debt concerns over the Baotou metro.
The Economic Observer newspaper said it was told by the Wuhan city planner that the NDRC was re-evaluating the country’s subway construction situation.
The Baotou city planner declined to comment when contacted by Reuters on Wednesday. The NDRC and authorities in Hohhot and Wuhan did not immediately respond to requests for comment.
Guotai Junan analyst Gary Wong said such a crackdown on metro projects was appropriate given that many remote and financially weak cities had undertaken metro projects. He said he did not anticipate a large impact on locomotive suppliers such as CRRC Corp. who have shifted focus to metros to offset the slowing high-speed rail market.
“They are already full with orders, even if they don’t get new orders at the moment they will still be busy for the next 2-3 years,” he said.
China would overtake Europe and the Americas if all 50 cities went ahead with their metro plans, data from the International Association of Public Transport showed. Europe has 46 cities with metro systems, and America has
33 cities.
— REUTERS


Wells Fargo to pay $1B for mortgage, auto lending abuses

Updated 20 April 2018
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Wells Fargo to pay $1B for mortgage, auto lending abuses

  • Fine the latest in a series of setbacks for US bank
  • Federal Reserve in February prohibited lender from growing assets until governance issues addressed

Wells Fargo will pay $1 billion to federal regulators to settle charges tied to its mortgage and auto lending business, the latest chapter in years-long, wide-ranging scandal at the banking giant. However, it appears that none of the $1 billion will go directly to the victims of Wells Fargo’s abuses.
In a settlement announced Friday, Wells will pay $500 million to the Office of the Comptroller of the Currency, its main national bank regulator, as well as a net $500 million to the Consumer Financial Protection Bureau.
The action by the CFPB is notable because it is the first penalty imposed by the bureau under Mick Mulvaney, who President Trump appointed to take over the consumer watchdog agency in late November. The $500 million is also the largest penalty imposed by the CFPB in its history, the previous being a $100 million penalty also against Wells Fargo, and matches the largest fine ever handed out by the Comptroller of the Currency, which fined HSBC $500 million in 2012.
The fine against Wells Fargo had been expected. The company disclosed last week that it was in discussions with federal authorities over a possible settlement related to its mortgage and auto lending businesses, and that the fine could be as much as $1 billion.
The settlement also contains other requirements that would restrict Wells Fargo’s business. The bank will need to come with a risk management plan to be approved by bank regulators, and get approval from bank regulators before hiring senior employees.
“While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency,” said Wells Fargo Chief Executive Tim Sloan in a statement.
The $500 million paid to the Comptroller of the Currency will be paid directly to the US Treasury, according to the order. The $500 million paid to the CFPB will go into the CFPB’s civil penalties fund, which is used to help consumers who might have been impacted in other cases. But zero dollars of either penalty is going directly to Wells Fargo’s victims.
The bank has already been reimbursing customers in its auto and mortgage businesses for these abuses. Wells Fargo has been refunding auto loan customers since July and been mailing refund checks to impacted mortgage customers since December.
While banks have benefited from looser regulations and lower taxes under President Trump, Wells Fargo has been called out specifically by Trump as a bank that needed to be punished for its bad behavior.
“Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!,” Trump wrote on Twitter back in December.
The abuses being addressed Friday are not tied directly to Wells Fargo’s well-known sales practices scandal, where the bank admitted its employees opened as much as 3.5 million bank and credit card accounts without getting customers’ authorization. But they do involve significant parts of the bank’s businesses: auto lending and mortgages.
Last summer Wells Fargo admitted that hundreds of thousands of its auto loan customers had been sold auto insurance that they did not want or need. In thousands of cases, customers who could not afford the combined auto loan and extra insurance payment fell behind on their payments and had their cars repossessed.
In a separate case, Wells Fargo also admitted that thousands of customers had to pay unnecessary fees in order to lock in their interest rates on their home mortgages. Wells Fargo is the nation’s largest mortgage lender.
Wells Fargo has been under intense scrutiny by federal regulators for several months. The Federal Reserve took a historic action earlier this year by mandating that Wells Fargo could not grow larger than the $1.95 trillion in assets that it currency held and required the bank to replace several directors on its board. The Federal Reserve cited “widespread abuses” as its reason for taking such an action.
This settlement does not involve Wells Fargo’s wealth management business, which is reportedly under investigation for improprieties similar to those that impacted its consumer bank. Nor does this involve an investigation into the bank’s currency trading business.
Consumer advocates have been critical of the Trump administration’s record since it took over the CFPB late last year. However, advocates were pleased to see Wells Fargo held to account.
“Today’s billion dollar fine is an important development and a fitting penalty given the severity of Wells Fargo’s fraudulent and abusive practices,” said Pamela Banks, senior policy counsel for Consumers Union.