Goldman’s ‘money pit;’ lenders embrace small installment loans

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The Dimon network

Friday’s appointment of former JPMorgan Chase consumer banking chief Charles Scharf as the new CEO of Wells Fargo “is not just a crucial turning point for the troubled San Francisco bank. It also represents further consolidation of the most powerful professional network in global finance: the JPMorgan Chase executive diaspora,” the Financial Times reports. “Former JPMorgan executives now lead banks with assets totaling some $4.7 trillion. Add in JPMorgan itself, where Jamie Dimon is into his 14th year as chief executive, and the sum reaches $7.4 trillion.”

The alumni list includes Barclays CEO Jes Staley, Standard Chartered chief Bill Winters, and PNC boss Bill Demchak. But “the Dimon network does not stop at the banking industry.” Several former executives now head other financial services firms. “Investors and analysts give much of the credit to Mr. Dimon’s own management skills.”

Scharf’s main task in his new job is to “satisfy Washington that Wells has completed the work of rebuilding the bank’s compliance and governance, an expensive process that has involved hiring new people and creating new offices,” the Wall Street Journal says. “During that time in the penalty box, he must also lay out to investors how those new costs will either eventually roll off or be offset, through process or technology improvements.”

Scharf said resolving regulatory issues with be his first priority, as it has been for his predecessor, interim CEO Allen Parker, American Banker reports.

Spy drama continues

Credit Suisse’s board of directors is “closing ranks around chief executive Tidjane Thiam as the Swiss bank attempts to draw a line under a corporate espionage scandal,” the FT reports. “The Zurich-based lender is battling its worst reputational crisis in years after it engaged a private investigator to track its outgoing head of wealth management, Iqbal Khan. The bank ordered the surveillance because of fears that Mr. Khan was preparing to poach bankers and clients to bolster the fortunes of arch rival UBS, where he is due to start in a similar role on Tuesday.”

The clash between Kahn and “his former mentor,” Thiam, has “captivated Zurich’s buttoned-up banking community, dominated Swiss tabloids and embarrassed Credit Suisse,” the Journal says. “It is also unsettling employees, some who say they are spooked by the idea the bank is tailing executives, a practice lawyers say is rare.”

The episode is “a lurid end to a spectacular dispute between two of the most powerful men in finance — one from which Mr. Khan may yet emerge triumphant,” the FT also notes. Kahn’s new role at UBS “would make him a likely successor to Sergio Ermotti as the bank’s chief executive. Mr. Ermotti is known to admire Mr. Khan’s relentless ambition, prizing it over the qualities of other more rounded contemporaries.”

Ready or not

When John Williams, “a Ph.D. economist and Federal Reserve lifer,” was named president of the Federal Reserve Bank of New York last year, “senior officials didn’t see his lack of financial-markets experience as a liability." Now, with the recent turmoil in the short-term lending market, "his market savvy is being put to the test," the Journal says.

“The situation is the biggest test so far for Mr. Williams and one that many market analysts say deserves a less-than-stellar grade.” But in an interview with the New York Times, Williams “batted back the critiques, defending the timing of the New York Fed’s recent responses and saying that the bank’s team was working effectively.”

Wall Street Journal

Money pit

Goldman Sachs’s move into consumer banking so far “is a money pit—and is challenging its identity as a titan of high finance.” So far Marcus, as the new consumer bank is known, “has lost $1.3 billion since launching in 2016. It spent heavily to buy startups and cloud-storage space, hire hundreds of techies, and build call centers in Utah and Texas. Loans have gone bad at a higher rate than that of rivals. It’s still early days, but Goldman has a lot riding on getting this right. The firm brings in less revenue than it did in 2010. Its stock trades below that of rivals with big consumer businesses, which are now in vogue with investors for their predictability and low-cost retail deposits.”

A better way to pay?

Large lenders like JPMorgan, Citigroup and American Express are jumping into the growing market for installment loans for relatively small-ticket consumer purchases. “Gone are the days when special financing plans were mostly reserved for big-ticket purchases like TVs and refrigerators. Now, sweaters, makeup or other everyday items can be paid for in installments with loans or other payment plans offered at checkout with thousands of merchants in the U.S., including Walmart. The payment plans often resonate with young adults who are wary of carrying credit-card balances after watching their parents struggle with debt during the last recession.”

Financial Times

Weak debut

So-called challenger banks, like Metro Bank, Santander and Monzo, “were supposed to revitalize the U.K.’s banking market” and “break the dominance of the established big four. Instead they are looking sick.” Dealing with banking regulations is a big part of the problem.

Quotable

“The skills he teaches, the qualities he looks for, if I was [Wells Fargo’s chair] Betsy Duke or head of another search committee, I would look right to JPMorgan. The highest praise I can give someone is that they make complicated issues simple, and Jamie and Charlie are so much alike in that way.” — Veteran bank investor and commentator Tom Brown about Scharf’s choice as Wells’ new CEO.

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