Goldman plans revamp; Banks deal with climate change

Register now

Wall Street Journal

The new Goldman
In an effort to boost its flagging stock price, Goldman Sachs is building a “mini-Blackstone Group” that includes four separate units that invest in private companies, real estate and other “hard-to-access deals” in order to “grow the kind of steady, income-generating business that investors like.”

“The division’s exact makeup will take shape over the next few months, but it is likely to have around $140 billion in assets” and will include a “fundraising blitz” to kick it off. “The move is the clearest sign yet” that CEO David Solomon wants to build “a modern corporation” and move away from the firm’s partnership roots.

In the future, the financial ecosystem will be "a web of application programming interfaces," Marty Chavez, global co-head of the securities division at Goldman Sachs, predicted at the CB Insights' conference on the future of fintech, American Banker's Penny Crosman reports.

Worth more alone?
“Shares of banks buying other banks are underperforming peers, reflecting concern among investors that potential economic weakness could depress future bank earnings and portend bigger-than-expected loan losses at target firms,” the paper reports. For example, the shares of both TCF Financial and Chemical Financial, which agreed to merge earlier this year, have fallen more than twice as far as the overall banking sector since the announcement. “The underperformance reflects jitters about the U.S. economy and interest rates, as well as credit quality.”

Consider the climate
Chief risk officers at financial institutions are starting to take the threat of climate change into consideration, although it “isn’t yet a standard industry practice. Twenty-six percent of banks and financial firms say they have established dedicated teams in their corporate risk or sustainability offices for evaluating climate-related risks, according to a survey by the Global Association of Risk Professionals. The finding comes as banks face increased scrutiny from investors and regulators over how extreme weather or environmental regulations could affect their bottom lines.”

A little help
Despite today’s strong job market, a growing percentage of homebuyers are taking advantage of government-funded downpayment assistance programs. “The share of buyers who used one of the more than 2,500 down-payment-assistance programs across the country doubled to 10% between 2013 and 2016, according to a Freddie Mac analysis. Those who use down-payment assistance start out with little or no skin in the game. As a result, some economists and analysts worry that buyers have less incentive to keep making payments if times get tough.”

Soaring
Bitcoin prices jumped to nearly $9,400 over the weekend, a 13-month high, “extending a rebound that has made cryptocurrencies far outperform traditional asset classes this year. Investors cite more institutional support for cryptocurrencies, escalating U.S.-China trade turmoil and Facebook’s planned digital coin as catalysts for the latest move higher.”

Financial Times

Big changes ahead
Deutsche Bank is planning a "deep overhaul of its trading operations" that includes creation of a "bad bank" that would hold up to €50 billion of assets "as chief executive Christian Sewing shifts Germany’s biggest lender away from investment banking. Deutsche’s equity and rates trading businesses outside continental Europe will be severely shrunk or closed entirely as part of the revamp, although the final decision is pending. Managers are also set to unveil a new focus on transaction banking and private wealth management.” The changes are expected to be announced next month when the bank releases second quarter results.

The easy way
In what the paper called a “damning assessment,” the Bank of England is warning executives at the U.K.’s challenger banks to tighten their standards after it found “widespread weaknesses in stress tests that showed new lenders cutting corners in an aggressive pursuit of growth. The intervention shows that regulators are concerned about the behavior of the challenger banks, whose rise has been encouraged in a bid to loosen the dominance of the big five High Street lenders.”

Refund, please
Credit Suisse is suing U.K. tax authorities to recover at least £239 million in fees it paid following the financial crisis under the former Labour government’s program to tax bankers’ bonuses. The tax, which was imposed on banks, not individuals, raised £3.4 billion during the four months that it was in effect in 2010. The case is scheduled to be heard in the U.K.’s High Court later this month “amid concerns among some bankers” that a Labour government led by Jeremy Corbyn “would lead to similar measures targeting the wealthy.”

All hands on deck
U.S. regulators are considering “pooling resources” to help assess cyber defenses at banks. “Several senior regulators have told the Financial Times that they are working on a cross-agency approach to testing banks against attacks that could crash global payments networks, expose customer data or otherwise threaten the integrity of an industry that now relies far more on terabytes and interchanges than bricks and mortar. The proposed system, which regulators say could be in place later this year, would replace an existing regime in which different regulators examine different parts of the same institution. This has left banks grappling with multiple requests and regulators at risk of not grasping the totality of a bank's exposure to cyber threats.”

Quotable

“Most fast-growing firms were overly optimistic about the potential impact of a stress scenario on their business.” — Bank of England senior supervisor Melanie Beaman, author of a report on the weak stress testing at U.K. challenger banks

For reprint and licensing requests for this article, click here.