10 to watch in 2019

CEOs on the hot seat. Banks fighting to stay independent. Comfortable players ripe for disruption from Amazon and others. It is shaping up as a riveting year. Here are our picks for 10 executives to keep on your radar this year and why they matter.

Michael Corbat, Citigroup
Citigroup Chief Executive Officer Mike Corbat.
Michael Corbat, new chief executive officer of Citigroup Inc., speaks during a Bloomberg Television interview on day two of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, Jan. 24, 2013. World leaders, influential executives, bankers and policy makers attend the 43rd annual meeting of the World Economic Forum in Davos, the five day event runs from Jan. 23-27. Photographer: Simon Dawson/Bloomberg *** Local Caption *** Michael Corbat
Citigroup CEO Michael Corbat did all the right things, so to speak, in 2018: He shuffled management, set bullish financial targets, announced plans for a digital bank and played nice when the company decided to name an outsider the chairman — all things that are supposed to make restless investors (and Citi has long had its share) happy about the megabank’s direction.

Yet those moves set up at least two major questions to be answered in 2019: Will Corbat and his team be able to deliver, and how well will he get along with the new Chairman (and former Comptroller of the Currency) John Dugan?

Its fourth-quarter results are not due out until Jan. 14, but Citi — the onetime poster child of the financial crisis — seemed to be having had a good year through Sept. 30. Third-quarter profit rose nearly 12% on tax savings, loan growth, cost control and momentum in its credit card operations despite investment banking challenges.

It’s a pivotal moment for the cards operations. With commercial loan growth still in a funk, banks will need to lean heavier on consumer banking. Citi spent years reeling in credit card customers with promotional rates as low as 0%, and many of those rates have expired or were poised to. The key is whether Citi can use rewards and other sweeteners to keep many of those customers, who will be paying higher rates, from transferring balances to other financial providers.

Corbat’s year in part will be judged by the performance of his rejiggered management team. He named a new chief financial officer, Mark Mason, among other changes in consumer and investment banking.

Expectations are high. In September, soon-to-be-retiring Chief Financial Officer John Gerspach predicted that return on tangible common equity will reach at least 13.5% by 2020, up from a previous estimate of 11%. Annual efficiency savings will be about $2.8 billion, compared with the previous forecast of about $2.5 billion, Gerspach said. However, he warned in December that markets volatility could curtail short-term improvements in those metrics.

Yet the most interesting touchstone at Citi in 2019 will be the working relationship between Corbat and Dugan. In the spring, it looked like Corbat might add the chairman title, based on comments by outgoing chairman Michael O’Neill, but the board decided in November to split the jobs as corporate governance advocates normally advise.

Corbat appeared to harbor no resentment, issuing a statement that said Citi “shareholders have been well served by having an independent chairman."

Still, the pressure will be on the ex-regulator Dugan to avoid the compliance problems and abuses that have caused Citi to stumble in the past, and activist investors will undoubtedly urge him to push Corbat hard for greater returns and performance improvements. How the two men balance ambitious goals and prudent oversight could set the course for Citi for years.
Tim Sloan, Wells Fargo
Wells Fargo CEO Tim Sloan
Tim Sloan, chief executive officer and president of Wells Fargo & Co., speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Monday, April 30, 2018. The conference brings together leaders in business, government, technology, philanthropy, academia, and the media to discuss actionable and collaborative solutions to some of the most important questions of our time. Photographer: Dania Maxwell/Bloomberg
This past year was another tumultuous one for Wells Fargo and its CEO, Tim Sloan.

Early in the year, the bank was slapped with an enforcement order from the Federal Reserve that prohibits it from increasing its assets above $1.95 trillion until it proves that it has a handle on the problems that have led to so many negative headlines — from the phony-accounts fiasco to abuses in auto and mortgage lending — over the last two-plus years.

In April, it was fined $1 billion by federal regulators for charging excessive fees on mortgage modifications and forcing car buyers to buy insurance they didn’t need.

And in December, the bank agreed to fork over $575 million to 50 states and the District of Columbia that will then use the funds to repay borrowers who had been harmed.

In a news release, Sloan said that the latest settlement, announced three days after Christmas, “underscores our serious commitment to making things right in regard to past issues as we work to build a better bank.”

What he didn’t say was whether it resolves the bulk of Wells’ seemingly endless regulatory woes, or if 2019 will bring more of the same.

At various times during 2018, the bank was reportedly under investigation for alleged infractions related to wealth management, commercial lending, foreign exchange trading and the selling of add-on products, and company officials have declined to provide updates on those probes. The bank’s shares lost nearly 25% of their value last year as revenue stagnated.

This steady drumbeat of bad news has raised questions about Sloan’s job security.

While board chair Elizabeth “Betsy” Duke has said that Sloan’s job is safe — “I think he’s the right CEO for Wells Fargo,” she said at the company’s annual meeting in April — the New York Post reported in September that Wells’ board early last year approached Gary Cohn, President Trump’s former top economic adviser, about replacing Sloan as CEO.

Wells refuted the report, and Cohn said at the time that he was not in negotiations with Wells. Tellingly, though, he never denied that a meeting took place.

Where this all leaves Sloan is anyone’s guess. In separate articles published in early January, editorial writers at the Pittsburgh Post-Gazette and the Charlotte Observer took Sloan to task for failing to fix the bank’s cultural problems and suggested that it may be time for the board to find a new leader.

Still, if the worst of Wells’ regulatory problems are in the past, and the bank’s financial performance rebounds, then chances are good that Sloan will survive. If not, his days could very well be numbered.
Scott Powell, Santander Holdings USA
Scott Powell, CEO of Santander Holdings
Here’s one way to think about Scott Powell’s role at the U.S. division of Banco Santander, the Spanish banking giant: Running an embattled auto lender is only half of his job.

Powell has the rare distinction of holding two CEO titles: CEO of Santander Consumer USA Holdings, the company’s Dallas-based subprime auto lender, as well as of its Boston-based parent company, which operates a $75 billion-asset bank with branches across the Northeast.

Since Powell took on the dual roles last year, his work at the Santander Consumer has been a major focus, as he sought to bring stability to a company that in recent years has been beset by accounting problems, executive departures and credit worries.

Perhaps the biggest question Powell faces is whether Santander Consumer survives as a stand-alone company if it loses its partnership with Fiat Chrysler.

The future of the partnership — in which Santander Consumer operates as a preferred lender for Chrysler dealers — was called into question in June, when Fiat Chrysler announced that it was planning to establish its own captive finance unit.

Analysts say the loss of the Chrysler Capital arrangement — a 10-year deal signed in 2013 — would be a huge blow for Santander Consumer. Roughly a third of the company’s loan book is made up of loans made through Chrysler dealers.

It could also pave the way for the full acquisition of the auto lender by its parent company. As of Sept. 30, Santander Holdings USA held a 68.3% stake.

Powell has other problems to attend to as well. Among them: the U.S. parent company is still working through regulatory order from the Federal Reserve, which calls for stronger oversight of Santander Consumer.

The thing to watch for will be how well Powell steers Santander Holdings through its remaining challenges — and if he can avoid new problems.
Margaret Keane, Synchrony Financial
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As the CEO of Synchrony Financial, Margaret Keane will find herself at the forefront of two issues that have big implications for the entire banking industry in 2019.

The first issue is whether U.S. consumers will continue to be able to meet their monthly debt obligations. During economic downturns the firm typically sees higher levels of bad loans than most other large card issuers.

The percentage of Synchrony loans that are delinquent has declined modestly over the last year, as the company has tightened its lending standards. But the loss rate can be expected to start rising when the credit cycle turns.

The second issue that is front and center for Synchrony is the migration of consumer spending to online channels.

The Stamford, Conn.-based card issuer recently lost its longstanding partnership with Walmart, which opted to sign a deal with Capital One Financial. But Synchrony still has partnerships with Amazon and PayPal, and the company’s ability to bounce back from the Walmart loss will depend in large part on the growth of its business with those two e-commerce heavyweights.

“Mobile and online is the way people are shopping today,” Keane has said. “Our view is, this is where the industry is going, or the consumer is going, and we need to be in the forefront of that.”
Alessandro DiNello, Flagstar Bancorp
Sandro DiNello, CEO of Flagstar Bancorp
Alessandro DiNello will be under pressure to boost core funding at Flagstar Bancorp in Troy, Mich., in 2019 after a branch acquisition fell flat last year.

DiNello has been leading a transformation of the mortgage-focused company into a commercial bank since becoming CEO in 2013. To expand its retail presence and acquire cheap funding, the $18.7 billion-asset Flagstar bought 52 branches from Wells Fargo in Michigan, Indiana, Ohio and Wisconsin in December. It also bought eight California branches from East West Bancorp in early 2018.

At first the Wells branch deal looked like a promising opportunity for Flagstar to add $2.3 billion in deposits to fund loan growth, and to gain $130 million in loans.

But once the deal closed, Flagstar received just $1.8 billion in deposits. More customers stayed with Wells Fargo than analysts and Flagstar had expected when the agreement was announced in June.

Flagstar, which originally expected an earn-back period "of significantly less than five years," said in a recent securities filing that it would now take about six years to overcome the dilution in its tangible book value.

A website crash the day after the conversion of the Wells branches added insult to injury.

“If I could apologize to every customer that couldn’t access their account on that day, I sure would,” DiNello said in a recent interview. “It’s probably one of the more disappointing things that’s happened to me in my career.”

DiNello, who became CEO in 2013, is concerned that a bad first impression may drive away more depositors. Local competitors certainly would be eager to accommodate them.
Kevin Cummings, Investors Bancorp
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It would come as no surprise if Kevin Cummings’ wish for the new year was a smooth start.

Cummings, the chairman and CEO at the $26 billion-asset Investors Bancorp in Short Hills, N.J., endured a rough few months to close out 2018.

While Investors’ share price trended down throughout 2018, its problems began in earnest in October, when the company reported a slight drop in operating earnings year over year. Profit for the three months that ended Sept. 30 rose 19% from a year earlier, but the miss on operating revenue, combined with concerns about tepid loan growth and increasing funding costs, sent Investors’ shares tumbling further. They closed Monday at $11.26, up from the 52-week low of $9.93 in late December, but still 23% off the 52-week high of $14.69.

Two weeks after it released third-quarter earnings, a report surfaced that Investors had hired the investment bank Keefe, Bruyette & Woods to explore a potential sale. Since then, it has been freed from a 28-month-old enforcement order related to Bank Secrecy Act compliance, and it reported $219 million in recent originations of commercial real estate loans.

There’s no telling whether Investors will be sold. At the same time, rising rates and narrowing margins will make it tougher for Investors, which relies heavily on spread income, to continue producing outsize profits.

Through the first nine months of 2018, noninterest income accounted for less than 6% of Investors’ operating revenue.

At the same time, elevated levels of payoffs are constraining the growth of Investors’ loan book.

A few more months of good news might give Cummings and Investors breathing room to regain their footing. Whether they get them remains to be seen.
David Zalik, GreenSky
David Zalik, cofounder and CEO of GreenSky.
As bad as 2018 was for investors in bank stocks, it was even worse for shareholders of GreenSky, an Atlanta fintech that matches consumers who are seeking loans for a range of services — from home improvements to elective surgeries — with banks that are eager to make them.

GreenSky was flying high at midyear; it raised $874 million in its initial public offering on May 24, and by early June its shares had risen 20% from their IPO price. But the shine began to wear off in the second half of the year as softening loan demand and increased funding costs — brought on by rising interest rates — forced the company in November to reduce its 2018 earnings guidance by 12% to 14%.

The earnings revision, announced on an earnings call Nov. 6, spooked investors. GreenSky’s shares plunged 37% that day and have barely recovered since. The stock, which was trading in the mid-$20 range in June, closed at $10.06 on Monday.

David Zalik is GreenSky’s founder and CEO, and arguably his biggest challenge in 2019 will be getting investors excited about GreenSky’s stock again.

GreenSky generates the vast majority of its revenue from the fees it charges lenders for facilitating loans through its network of merchants, and there’s good reason to be optimistic about 2019.

Funding commitments from banks increased by 44% between the second and third quarters to $11.5 billion, as GreenSky added bank partners — BMO Harris Bank and Flagstar Bancorp are the latest to join its network of lenders — and continued to expand into new areas of consumer lending.

The company also recently struck a partnership with American Express under which Amex will market home improvement installment loans to select pre-approved cardholders.

“We expect our home improvement originations to grow by approximately $900 million to $1 billion in each of fiscal 2018 and 2019, against a total addressable market in home improvement of over $300 billion,” Zalik said on the third-quarter earnings call. “We have a long runway ahead to get meaningful market share.”

But investment analysts say there are also reasons to be concerned about GreenSky’s growth prospects.

The biggest worry, of course, is that the economy sours, loan demand weakens and partner banks reduce their funding for GreenSky loans, analysts at Sandler O’Neill & Partners wrote in a December research note.

Another worry is that the Fed continues raising interest rates to keep inflation in check.

“We are also concerned that if partner banks confront sharply rising deposit costs in the future, then they might shift their loan mix away from GreenSky and other consumer loan platforms,” the analysts wrote.
Anthony Noto, SoFi
Anthony Noto
Anthony Noto, chief operating officer of Twitter Inc., arrives for the morning session during the Allen & Co. Media and Technology conference in Sun Valley, Idaho, U.S., on Thursday, July 13, 2017. The 34th annual Allen & Co. conference gathers many of America's wealthiest and most powerful people in media, technology, and sports. Photographer: David Paul Morris/Bloomberg
Social Finance, which has its roots in the refinancing of student loans, wants to become a full-service provider of financial services for its young, upwardly mobile customers. But the firm’s big ambitions have been stymied in numerous ways over the last 18 months.

First came the departure of co-founder and Chief Executive Mike Cagney amid allegations that he built a frat-house culture. Cagney’s exit led SoFi to withdraw its application to launch a federally insured bank.

Since new CEO Anthony Noto joined the company in February, rising interest rates have eaten away at its opportunities to refinance student loans and originate mortgages. SoFi reportedly initiated two rounds of layoffs in 2018 amid plans to restructure its home loan business.

The upcoming year will offer a gauge of the company’s ability to bounce back. One key initiative is SoFi Money, a deposit account that launched to a limited set of customers in May.

Noto will also have to decide whether to revive SoFi’s efforts to launch a bank. SoFi was the first fintech to apply for a banking license back in June 2017, but two of the company’s competitors, Varo Money and Square, are now further along that path.
Marianne Lake, JPMorgan Chase
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There has been plenty of chatter over the past year about how Marianne Lake, the chief financial officer at JPMorgan Chase, has emerged as a front-runner to eventually replace CEO Jamie Dimon.

But with Dimon planning to stay at the helm through 2022, many industry watchers are wondering if Lake will remain in her current post or move into a new role, such as running one of the bank’s four major business lines, thus strengthening her candidacy for the corner office.

Lake has been a senior executive at JPMorgan Chase for nearly two decades, but she has never run a revenue-generating line of business. Before stepping into her current role in 2013, she served as CFO of the consumer and community bank for four years. Before that, she was global controller in JPMorgan’s investment bank.

Moving Lake out of the CFO’s office would likely involve some reshuffling in the executive ranks. Two business line CEOs — Gordon Smith of the consumer and community bank, and Daniel Pinto of the corporate and investment bank — also serve as co-presidents and co-chief operating officers.

JPMorgan’s other business line heads — Mary Callahan Erdoes of asset management and Daniel Petno of commercial banking — have held their titles since 2009 and 2012, respectively.

Asked about her next moves during an interview this summer with American Banker, Lake said that she’s happy in her current job but that she’s keeping her options open.

“I’m king of open-minded about what could be next,” she said. “There are a lot of interesting places to be in this company.”
Jeff Bezos, Amazon
Jeff Bezos, chief executive officer of Amazon.com.
Jeff Bezos, chief executive officer of Amazon.com Inc., introduces the Kindle Fire HD tablets at a news conference in Santa Monica, California, U.S., on Thursday, Sept. 6, 2012. Amazon.com Inc. is updating its line of Kindle e-readers and tablets in a bid to stoke consumer demand as Google Inc. and Microsoft Corp. join the crowded market of machines challenging Apple Inc.’s iPad. Photographer: Patrick Fallon/Bloomberg *** Local Caption *** Jeff Bezos
We know what you are thinking: How could Amazon’s Jeff Bezos make any more news in 2019 than he did in 2018 with the run-up to the selection of the New York and Washington, D.C., regions for its new East Coast hubs?

The answer: Plenty, at least when it comes to financial services. Decisions that Bezos & Co. are poised to start making this year could have a long-lasting impact on consumer and commercial banking as well as payments. What’s more — and even a little Twilight Zone-ish — is that banks may be underestimating the nature of the threat.

Recall that the Amazon-in-banking headlines were coming fast and furiously in February and March:

· The online retailer reportedly put out requests for proposal to JPMorgan Chase, Capital One and perhaps others to partner on an Amazon-branded checking account for young consumers and the unbanked.

· Amazon was said to be planning to offer a co-branded credit card to certain small-business customers with JPMorgan or other banks.

· It had been looking to hire a mortgage industry veteran to head a newly formed home lending division, according to one report.

· And it had already teamed with Bank of America to make loans to merchants that sell goods on its website, according to another story.

It will be interesting to see which of the pending projects Bezos pursues, how they are structured, how they will interrelate and who will be driving the bus: tech executives, or bank CEOs?

Unlike nonbank threats in the past (can you say, “Walmart?”), the banking industry did not respond with the usual protest and outrage. In fact, many executives have said that banks have little to fear from Amazon.

But are they being too blasé about Amazon and other tech heavyweights?

The concern among some is that banks could lose vital parts of their business to many different nonbank competitors, or lose control of customer data. Amazon started Amazon Cash in 2017 to allow it take cash deposits from convenience stores, Apple and Samsung are offering their own payment apps, and tech companies could become major distributors of products and services through voice-controlled devices.

And the Office of the Comptroller of the Currency pushed ahead on its special-purpose charter for fintechs that could draw applicants if and when more regulatory issues are resolved.

In essence, banks could be bypassed in key profit centers.

"This is a classic missing the forest for the trees, looking at the charters," Karen Shaw Petrou, managing partner of Federal Financial Analytics, warned early in the year. "Who needs a charter? [Big tech companies] can offer the structural equivalent without one."

Bezos’ decisions in 2019 about where to take its pending banking initiatives will go far in determining the winners and losers in financial services in the long run.
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