Risk Channel delivers the latest, most relevant and useful business intelligence to key decision makers and influencers, each weekday morning.

TD Bank has received a negative rating outlook from S&P Global, marking the second downgrade for the lender facing anti-money laundering probes in the U.S. S&P Global cited weaknesses in risk management and controls as the reason for the revision. It comes after a similar action by another rating agency. TD Bank is under investigation for allegations that it was used to launder $650m by Chinese drug traffickers. The bank has set aside $450m to cover potential fines and expects more penalties. TD Bank is investing $500m to overhaul its compliance program and has terminated employees. The negative outlook indicates a one-in-three chance of a ratings downgrade in the next two years. TD Bank's shares have declined over 10% this year. CEO Bharat Masrani acknowledged serious instances where the bank failed to effectively monitor and respond to suspicious activity.

 

Reuters

U.S. inflation remained unchanged in April, raising concerns for the U.S. central bank and casting doubt on the possibility of interest rate cuts. The Commerce Department's personal consumption expenditures (PCE) price index increased by 0.3% last month, matching the gain in March. It was up 2.7% for the year.  Both matched the predictions of economists polled by Reuters. The Federal Reserve has been keeping its benchmark policy rate steady for the past 10 months, but the recent inflation data suggests that the pace of price increases may last longer than expected. The Fed has been aiming for a 2% inflation target, and monthly inflation readings of 0.2% are needed to reach that target. The latest data on job gains and the consumer price index provided some relief for the Fed, but the uncertainty surrounding inflation and the economy has led to speculation about the timing of rate cuts. Consumer spending, a key driver of economic activity, increased by 0.2% in April, down from a 0.7% rise in March. The moderation in consumer spending is reflected in the revised gross domestic product data, which showed a slower pace of growth in the first quarter.

 

US News and World Report

The U.S. economy grew at a slower pace than previously estimated in the first quarter of the year, after the Commerce Department's downward revision to consumer spending. Gross domestic product (GDP) grew at an annualized rate of 1.3%, down from the initial estimate of 1.6%. The downgrade in growth follows recent weakness in retail sales and equipment spending. Inflation during the first quarter was revised down to 3.3% from 3.4%, the highest quarterly price-pressure growth in a year. “Monthly data beyond March generally point to a continued, albeit gently cooling, economic expansion. We anticipate continued GDP gains this year and a healthy advance in 2024 overall,” Nationwide financial markets economist Oren Klachkin said in a note. “Some warning signs regarding the economic outlook are visible beneath the surface, but nothing that makes us pessimistic about the road ahead.”

 

US News and World Report

Bloomberg

New York Times

Wall Street Journal

The Commerce Department says that the U.S. trade deficit in goods widened 7.7% in April to $99.4bn, the widest gap since May 2022, and well above the $92.5bn expected by economists polled by Econoday. 

 

Market Watch

The U.S. Equal Employment Opportunity Commission (EEOC) has filed lawsuits against more than a dozen employers for failing to submit mandatory reports on the racial and gender composition of their workforces. These companies, ranging from retailers to construction and manufacturing businesses, did not file EEO-1 reports in 2021 and 2022. Private-sector employers with 100 or more employees are required to annually file these reports, which collect workforce information based on job category, sex, race, and ethnicity. The EEOC uses this data to enforce anti-discrimination laws. The agency is seeking court orders to compel the companies to file the missing reports. If the employers fail to comply, they could face penalties such as fines or imprisonment. The EEOC's decision to sue came as a surprise to many, as it was not part of their strategic enforcement plan. The commission is currently collecting EEO-1 reports for 2023.

 

Bloomberg Law

U.K. banks and asset managers in the finance industry are now subject to new anti-greenwashing rules enforced by the Financial Conduct Authority (FCA). The FCA's broad requirement will capture a wide range of communications, including marketing materials, fund documentation, and websites. The FCA will assess public statements that may mislead investors about the sustainability of a product or service. The new rules have raised concerns about potential litigation risks and the need for firms to gather more data. The U.K.'s crackdown on greenwashing is part of a wider European effort, with the EU considering new measures to combat the issue.

 

Bloomberg

The European Securities and Markets Authority (ESMA) has issued its first statement on the use of artificial intelligence (AI) by banks and investment firms in the European Union. "The firm's management body should have an appropriate understanding of how AI technologies are applied and used within their firm and should ensure appropriate oversight of these technologies," ESMA said. The statement focuses on compliance with MiFID, and is separate from the EU's landmark rules on AI that come into force next month.

 

Reuters

Aon Consulting, a firm that works with Fortune 500 companies, is accused of falsely claiming that its applicant screening software is "bias-free." The American Civil Liberties Union (ACLU) has filed a complaint with the Federal Trade Commission alleging that Aon's AI-powered hiring tools discriminate against job candidates based on disability and race, despite being marketed as non-discriminatory. The ACLU specifically points to Aon's algorithmically driven personality test, ADEPT-15, which it says adversely impacts autistic and neurodivergent individuals, as well as people with mental health disabilities. Aon also offers an AI-infused video interviewing system and a gamified cognitive assessment service that are likely to discriminate based on race and disability, the ACLU said. A growing body of research has shown that AI tools in HR and hiring can be biased, Bloomberg notes. “We are committed to building solutions that enable our clients to make inclusive hiring decisions,” an Aon spokesperson said in a statement to Bloomberg.

 

Bloomberg

Two Citgo oil executives who were detained in Venezuela for nearly five years have filed a lawsuit against their former employer, seeking over $400m in damages. The executives allege that Houston, Texas headquartered Citgo conspired to lure them to Venezuela under false pretenses and then abandoned them as they endured horrendous prison conditions for crimes they did not commit. The lawsuit claims that Citgo's top oil executives ordered the men to travel to Venezuela for a mandatory meeting, knowing there was a strong chance of their arrest. The executives were later convicted and sentenced to prison for their alleged involvement in a debt financing deal. The lawsuit also accuses Citgo of ignoring the families' pleas for financial support and failing to release documents that could prove their innocence. The executives were eventually freed in 2022 as part of a prisoner swap. A similar lawsuit was filed last year by another former Citgo executive.

 

U.S. News

Data analytics giant Equifax has been accused by a pair of home mortgage lenders of monopolizing the market for electronic income and employment verification services, leading to higher prices. The lawsuit alleges Equifax, through its Equifax Workforce Solutions unit, has violated antitrust law through exclusive contracts and buying up would-be competitors. The industry domination, according to the lawsuit, has allowed Equifax to charge for its services “far higher than a competitive market would bear.” The case was brought on behalf of a proposed class of at least tens of thousands of purchasers of Equifax's income and employment services. The lawsuit demanded unspecified monetary damages, and it seeks an injunction to stop Equifax's alleged anti-competitive practices.

 

Reuters

Cantor Fitzgerald has filed a lawsuit against IT Convergence, the firm that hosts its critical and sensitive data. The lawsuit alleges that IT Convergence attempted to extort money from Cantor Fitzgerald during the process of migrating its data to Oracle Corp. Cantor Fitzgerald claims that ITC demanded an immediate wire transfer of over $700,000 in invented costs and fees. Despite believing that the money was not owed, Cantor Fitzgerald made the payments to avoid disruption to its business. The firm is seeking the return of the payment and damages totaling almost $2.3m.

 

Bloomberg

As shareholders gear up to vote on a massive pay deal for Elon Musk, American fund manager Cathie Wood is urging investors to back the $56bn package for the Tesla boss. Proxy advisors Institutional Shareholder Services and Glass Lewis have spoken out against the deal, but Wood said Musk had not taken a salary since 2017, during which time shares in the electric carmaker have risen by more than 1,000%. A reward scheme approved by the board in 2018 was struck down by a Delaware court in January. Wood says the future of Tesla was in question in 2018 and there were doubts over whether the Model 3 could be scaled. “Six years later, not only did Tesla scale the Model 3, but the Model Y became the bestselling car in the world. Elon Musk did the impossible,” she said, adding: “He deserves it.”

 

Financial Times

The Guardian

The International Sustainability Standards Board (ISSB) and the IFRS Foundation have published a jurisdictional guide to help countries adopt or use their sustainability reporting and climate-related disclosure standards. Over 20 jurisdictions, representing nearly 55% of global GDP and more than 30% of global market capitalization, have indicated plans to incorporate the ISSB standards into their legal or regulatory frameworks. The ISSB and the Global Reporting Initiative (GRI) have also strengthened their collaboration to ensure seamless use of their standards for sustainability reporting. They will jointly identify and align common disclosures and explore sector-based standard setting. The collaboration will begin with a pilot project on biodiversity. The ISSB and the GRI will continue to make decisions separately but aim to build a fully aligned global standards system.

 

Accounting Today

Saudi Arabia has initiated the sale of oil giant Aramco, a deal that could raise up to $13.1bn and test international investor interest. The offering will gauge Riyadh's appeal to foreign investors and support the government's efforts to diversify its economy. The Public Investment Fund (PIF), the driving force behind the kingdom's ambitious agenda, is expected to benefit from the funds. The sale is managed by top investment banks, including Citi, Goldman Sachs, and JPMorgan. Retail investors will have a 10% reservation, subject to demand. Aramco's shares were down 2.6% on Sunday. If all shares are sold, the Saudi government will reduce its stake in the world's top oil exporter by 0.7%. The OPEC+ group is set to meet to determine output policy. Aramco has increased dividends despite lower profits due to lower volumes. The Saudi government holds just over 82% of Aramco, while PIF owns 16%. ($1 = 3.7507 riyals)

 

Reuters

Amid four consecutive years of heavy losses, the FT examines how the insurance industry is facing a crisis as climate change fuels natural catastrophes such as floods and wildfires.

 

Financial Times