- Cuomo's search for new DFS chief has dragged on for months
- Agency has clashed with governor over independence on cases
New York’s oversight of the financial services industry is in disarray following news that the acting head of the state’s Department of Financial Services will leave by year’s end, with no replacement in sight.
The four-year-old agency, which Governor Andrew Cuomo created in the aftermath of the financial crisis, lost its first leader when Benjamin Lawsky stepped down in June. Now it’s losing Anthony Albanese, Lawsky’s right-hand man, who shared his boss’s aggressive enforcement vision.
The search for Lawsky’s permanent successor has dragged on for months amid clashes between the Democratic governor and the agency over its independence.
Albanese’s departure for a new job could slow settlement negotiations with banks, which may drag their feet until a new superintendent arrives. With the financial industry lobbying Cuomo’s team to ease up on the punitive fines levied on the sector, the search for a new leader could become even more difficult.
Founded in 2011, the DFS under Lawsky became one of the most powerful financial regulators in the world, according to Geoffrey Miller, an expert in securities law at New York University School of Law.
In picking a new leader, Cuomo “undoubtedly would value the opportunity to burnish his reputation as an aggressive enforcer,” Miller said. “But he is also probably concerned about attracting and retaining an industry that is central to the state’s financial position and stature in the world.”
The search is on, and Cuomo could still come up with a replacement quickly, keeping the fledgling agency on course.
“We are looking for the most qualified candidate who is effective and who possesses the significant managerial experience to run the agency,” Dani Lever, a Cuomo spokeswoman, said by e-mail Tuesday. “We are confident that throughout the selection process, the strong regulatory oversight performed by DFS will continue.”
Albanese, 44, was originally hired at the DFS in 2011 in part because of his family connections with Cuomo’s father, Mario, who served three terms as New York’s governor from 1983 to 1994.
Albanese was Lawsky’s chief negotiator in major settlements with banks, consulting firms and mortgage servicers. Their activist vision was so closely aligned that when Albanese was named acting superintendent, Lawsky boasted that it would be “business as usual for DFS.”
About a month after taking over, however, Albanese developed a testy relationship with Brendan Fitzgerald, the governor’s deputy secretary for financial services, according to three people familiar with the matter. Fitzgerald often badgered Albanese, the people said, demanding to be told ahead of time when the DFS was starting a new probe or issuing subpoenas.
Albanese bristled at what he perceived to be micromanagement, the people said, and argued frequently with Fitzgerald.
“It is not unusual in a period of transition that the temporary head of an agency would work more closely with the second floor’s deputy secretary overseeing that agency to ensure continuity and the same high standard of performance,” said Lever, the Cuomo spokeswoman, referring to the floor that houses the governor’s staff. “As was widely reported, when the prior superintendent left, his deputy, Mr. Albanese, agreed to stay for a short time to assist with the transition, with the understanding that a permanent replacement would then be appointed.”
Under Lawsky and Albanese, the DFS collected $6.8 billion in fines and penalties from banks and related companies. The windfall has been earmarked for a variety of projects, including revitalizing cities and rebuilding the Tappan Zee Bridge, and helped Cuomo boast of his state’s strong financial standing.
But the penalties sent shock waves through New York’s business community, as well as among banking regulators in Europe, whose institutions were hit hardest.
“The pattern of growing settlements has created a punitive atmosphere,” Kathryn Wylde, president of the Partnership for New York City, a CEO association, said in an interview last week. Fighting the agency is no more attractive an alternative. “The reputational risk for institutions is so great that they can’t afford not to settle,” she said.
In almost every major enforcement confrontation, Albanese served as Lawsky’s negotiator, pushing adversaries to the limit, say lawyers who have dealt with him.
When Lawsky threatened in 2012 to revoke the banking license of Standard Chartered Plc over sanctions violations -- a move that caused consternation among other regulators trying to reach a settlement -- Albanese served as point man in his interactions with the London-based company.
Two years later, Albanese played a leading role in the $8.9 billion settlement between BNP Paribas SA and U.S. regulators. When Lawsky said he wanted to restrict BNP’s dollar-clearing services, French regulators objected.
“They thought we were going to destroy the financial system,” Albanese recalled in a previous interview. So in June 2014, after all other details of the complex settlement had been worked out, Albanese flew to Paris and explained the plan to regulators from France, the U.K., Switzerland, Italy and Belgium.
With a blunt style honed in the zero-sum game of bankruptcy negotiations at the law firm Weil Gotshal & Manges LLP, Albanese could serve as a bulldog for Lawsky, whose role required him to function as New York’s ambassador to the banking and insurance industries. But the promotion in June didn’t soften Albanese’s style.
In July, negotiations between the DFS and Promontory Financial Group LLC stalled when the consulting firm refused to concede that its work monitoring Standard Chartered’s compliance with trade sanctions lacked independence.
The next month, Albanese castigated the firm and shut off its access to confidential supervisory information in New York, effectively freezing it out of the lucrative market for global banks. Promontory threatened to sue, but two weeks later both sides struck a compromise.
The firm agreed to pay $15 million and pledge to improve its work. It also voluntarily agreed not to take on new work in New York for a period of six months. It didn’t have to admit that its work lacked independence.
More recently, Albanese clashed with the U.S. Justice Department over the timing of a $787 million settlement with Credit Agricole SA, another French bank that admitted to sanctions violations.
By late September, state and federal authorities had agreed on the parameters of the deferred-prosecution agreement. Before moving forward, federal prosecutors in Washington asked for a few weeks to get approval from senior officials at the Justice Department. On a conference call earlier this month, they told Albanese it might take until late October or early November before they’d get the green light.
Albanese snapped at them, according to two people briefed on the matter. He didn’t see why the agreement -- which had already been negotiated, down to the $787 million payment -- should remain on hold.
He said his agency would announce its portion of the settlement on Oct. 20, with or without the feds, according to one of the people.
On Friday, Oct. 16, word came from Washington that the Justice Department was ready to proceed and all the parties could announce the settlement the following Tuesday. Also on that day, Albanese gave notice to Cuomo’s office that he’d accepted a job and would need to leave in December, said two people familiar with the matter. The new job hasn’t been announced.
The plan was to wait a few weeks before going public with the news, but on Monday, Politico reported the impending departure, which by the end of the day forced the regulator to issue a statement.
In a memo to his staff Tuesday, Albanese assured employees that there would be no slowdown at the department: “It is still full steam ahead here at DFS.”