Receiving Wide Coverage ...
GE Turns Off Bank Switch: Plenty of digital ink was spilled late Friday and over the weekend about General Electric's decision to sell its GE Capital unit. The Wall Street Journal suggests in one of its takes the exit decision represents a chance for banking and non-bank companies to acquire assets that could transform a company. The largest piece of the business up for sale is GE's $74 billion-asset commercial lending and leasing unit, which the paper speculates could attract buyers such as PNC Financial Services Group and Citigroup. GE Capital's business of making loans for purchasing equipment could attract CIT Group or Ally Financial. And Mitsubishi UFJ Financial Group, parent of MUFG Union Bank, could be interested in kicking the tires of some other of GE Capital's assets. A Financial Times columnist takes a look at the lessons of non-banks, like General Electric, becoming too bank-like in their operations (read: increased regulation) and why the related risks forced GE to sell. Another lesson is the danger of relying too heavily on wholesale funding, the New York Times reported in one of a number of stories it published on GE's decision. GE Capital's heavy reliance on short-term funding got it into trouble when the economy collapsed in 2008. But in the rebound, GE Capital lowered its holdings of short-term funding and its profits dropped. In another Times piece, several analysts and experts opined about how it's difficult for a company tooperate both as a conglomerate and a bank at the same time. "Trying to emulate Warren Buffett isn't a good strategy if you're not Warren Buffett," said Columbia Business School professor Bruce Greenwald. Of course, the name of former GE CEO Jack Welch is also invoked, as the Times describes the GE Capital exit as "exorcising the financial demons of Jack Welch."
Wall Street Journal
Wells Fargo's deal with GE Capital is the latest move in the San Francisco lender's efforts to move into riskier territory. Wells Fargo has historically eschewed investment banking in favor of mortgages and other types of business. But in recent years Wells Fargo has ramped up fee-based services, including investment banking and trading assets, and opening foreign offices. So far, Wells Fargo's move into investment banking has not prompted greater regulatory scrutiny because it's not large enough in the area yet. Former Wells Fargo CEO Richard Kovacevich has been recruited to help explain to employees and investors the bank's push into investment banking. In the GE Capital transaction, Wells Fargo is acquiring commercial real estate loans, but it's also advising on the deal, according to the paper, and in a related part of the transaction it's financing Blackstone Group's acquisition of a $4.6 billion loan portfolio.
Smaller banks, or at least those not among the 25 largest commercial banks by assets, have outgrown their larger rivals in a couple of key categories, the "Heard on the Street" column notes. Smaller banks have grown their portfolios of commercial real estate loans and commercial-and-industrial loans faster than the biggest banks. Further, smaller banks have been more resilient in the face of low interest rates, at least in the area of defending against net interest margin compression. The column points to two banks that are projected to report exceptional year-over-year profit growth in the first quarter: PacWest Bancorp at 36%, and Western Alliance Bancorp at 23%.
A decline in volatility in the bond markets likely will translate into lower trading revenues for JPMorgan Chase, Citigroup and other banks with trading operations, according to a separate "Heard on the Street" column. The decline in trading volume in March may have been steep enough to wipe out the gains from volatile markets in January and February.
Bank employees are unhappy due to "stagnant" pay, "brute politics," "dull work," "lousy colleagues" and other factors, according to a report by the New York headhunter Options Group. But what about the bed bug infestation?
New York Times
Managing mutual funds is a good business for the largest banks, but that doesn't mean the funds are a good investment. Most of the actively managed mutual funds at JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley have underperformed basic benchmarks over the past decade, according to Morningstar research.
The Federal Reserve should heed the warning of Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., the paper says in an unsigned editorial. Hoenig said banks hold less capital than what the Fed's stress tests revealed; the difference is based on Hoenig's calculation of the risk of derivatives holdings. The Fed should require banks to hold more capital to compensate for their derivatives holdings, which are riskier than the U.S. accounting rules used by the Fed estimate.
Chicago Tribune: Several banking industry leaders discussed changes in the mobile-payments field at SourceMedia's Card Forum & Expo in Chicago last week. One area of concern discussed was the degree of human interaction in a world where consumers increasingly need to do very little to perform a transaction. It's possible, for example, for a Uber rider to exit a car without reaching for his or her wallet. Some human interaction should remain for consumers to retain a sense of trust, said Carey Kolaja, head of global consumer products at PayPal. The introduction of new payments technology gives banks an entry point in the discussion, said Leslie McNamara, managing director for partner management at Citi Retail Services. "They see these new payment types as a point in time when they can insert themselves into the dialogue and start to direct this," McNamara said.