Goldman’s small reveal on consumer unit; Warren proposes bankruptcy reform

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Goldman Sachs’ consumer division “generated just 3%” of the bank’s pre-tax earnings in the first nine months of 2019, “highlighting the group’s continuing heavy reliance on its traditional businesses,” the Financial Times reports. Filings made by the bank “show that Goldman’s consumer and wealth management unit, which includes its online bank Marcus, its Apple credit card and its newly acquired investment adviser United Capital, generated $256 million of its $8.3 billion of pre-tax earnings” in the first three quarters of last year. The division’s net revenues for the nine-month period were $3.8 billion of the bank’s $26.6 billion. In the third quarter of 2019, including United Capital, it accounted for 16% of revenues and 5% of pre-tax profit.”

However, Devin Ryan, an analyst at JMP Securities, “said he was not concerned about the small size of the businesses which Goldman has invested billions of dollars developing and acquiring,” adding that it “will be a meaningful driver of growth in the company in the future. We are in the very early days.”

Separately, Bryan Cohen, a former Goldman vice president, “pleaded guilty in Manhattan federal court Tuesday to his role in an alleged international insider-trading scheme, admitting that he conspired to give nonpublic information about Goldman clients to a securities trader in Switzerland in exchange for cash and other perks,” the Wall Street Journal reports.

According to prosecutors, the “sprawling conspiracy generated tens of millions of dollars in illegal profits,” the FT says. Cohen “is the latest of several former Goldman employees to be convicted of insider trading in recent years,” the paper adds.

Leaner

UBS “is preparing to cut 500 jobs in wealth management, the latest move by the division’s new chief executive Iqbal Khan to revive performance at the world’s largest wealth manager,” the FT reports.

The move by the Swiss bank will “strip out layers of bureaucracy in its wealth-management arm as it attempts to keep its edge as bank to the world’s rich and cut costs,” the Journal says. “Up to three layers of management would be removed in some areas, to try to give managers greater powers in attracting and servicing clients. Financing and trading operations for wealth clients will move to UBS’s investment bank.

“UBS and its rivals are in a race to win rich clients and keep them happy as technology upends traditional relationship banking and a greater share of the world’s wealth tips to Asia and other emerging markets,” the paper adds.

ESG lending

Banks are looking more closely at “environmental and social risks in deciding whether to lend money to certain corporate borrowers,” the Journal reports. Fitch Ratings found that 67% of the 182 banks it surveyed “screen their loan portfolios for environmental, social and governance risks.”

“At some banks, that means making commitments to stop lending to companies in industries viewed as high risk, such as those that operate private prisons or manufacture firearms. At others, it involves collaboration among credit underwriters, sustainability experts and investor relations executives to review potential credits. Financial institutions are responding to pressure from investors and regulators to address climate change and other nonfinancial risks.”

Meanwhile, “Barclays is under pressure to stop financing some fossil fuel companies after a group of shareholders filed a landmark climate change resolution for the British bank’s annual investor meeting, thrusting the European financial industry to the center of the debate on global warming,” the FT reports. “Eleven institutional investors, which collectively manage £130 billion, co-filed the proposal. The resolution calls on Barclays to publish a plan to phase out financing companies in the energy sector and gas and electric utilities that are not aligned with the Paris climate agreement. The resolution is the latest sign that investors’ focus on climate change has extended beyond oil, gas and mining to sectors such as banking, which provides a vital source of capital to fossil fuel producers.”

This year “may be the year when climate-risk analysis of portfolios moves out of a specialized niche into the mainstream,” Huw van Steenis, chair of the sustainable finance committee at UBS, writes in an FT op-ed. “Investors and boards have begun to realize that it can be more costly to ignore these issues, than to try to grapple with them.”

Wall Street Journal

Forgive us our debts

Sen. Elizabeth Warren “is proposing a sweeping overhaul to the consumer bankruptcy system” that would “make the bankruptcy process cheaper and less painful for most Americans. Ms. Warren’s proposal would undo hallmarks of the 2005 law that consumer advocates say had the effect of dissuading people from declaring bankruptcy by making it more expensive and onerous. One provision would eliminate the requirement for people to turn over some of the paperwork, including pay stubs and old tax returns.”

Warren’s plan would also “eliminate a requirement that filers take credit counseling classes. Ms. Warren also would enable more people to file for chapter 7 protection, the cheapest and most popular form of bankruptcy. Another provision in her plan would give student-loan borrowers the power to leave that debt behind when they file for bankruptcy.”

Andrew Harrer/Bloomberg

Rising trusts

“Things are looking up” this year for the two largest U.S. trust banks, State Street and Bank of New York Mellon, which “were at times left out of the party” last year, when banks stocks rose 32%. “Investors’ big fear was that long-building fee pressure on fund managers, and in turn on the banks who service them, had reached an acute stage,” the paper says.

“But things brightened up late in the year. State Street said new pricing strategies had sharply moderated the pace of fee declines. Rising markets helped too, since many services are priced off asset values. And September’s spike in repo rates was actually an opportunity for trust banks, which are in some ways less cash-constrained than peers and are major net repo lenders. A further catalyst would be if trusts can also make more progress streamlining their cost structures for a lower-fee world.”

Financial Times

The envelopes, please

The Monetary Authority of Singapore “is set to issue five digital banking licenses later this year after receiving 21 applications from companies” that could “shake up the country’s banking industry.” The agency is “opening its market to some of Asia’s leading technology companies for the first time.” The agency is expected to announce “the successful applicants in June, with the winners expected to start operating by mid-2021.”

Quotable

“We find that ESG screening leads to greater due diligence.” — Monsur Hussain, a financial institutions researcher at Fitch Ratings, which found that two-thirds of banks it surveyed screen their loan portfolios for environmental, social and governance risks