Wall Street Journal
Has the presence of institutional investors caused this country's biggest banks to act as if they were a big monopoly? That's the question a group of economists asked in a paper. The scholars found banks will make their customers pay more in fees and offer less in interest on deposit certificates when institutional investors invest in competing banks. Consequently, the presence of the same investor from company to company can begin to make multiple competitors look like one behemoth, according to the paper. Nonetheless, banks have not seen the growth in profitability that should accompany common ownership. Banks compete a lot in loan pricing, which has driven down interest and net interest margins, meaning they are far from being a monopoly.
European banks now face a Catch-22: they must continue to invest in American operations, even when they are struggling to remain competitive at home. That's because America's capital markets are still the biggest and most profitable in the world. Plus, the likes of Barclays, Credit Suisse and Deutsche Bank have grown their market shares to become the three top European investment banks in the U.S. by revenue – not an easy feat. Yes, the European banks are struggling, but as long as the U.S. represents the lucrative proposition it does now, they're faced with little choice but to play ball – even if it's an expensive game.
Newer lenders are shunning the traditional FICO credit score in favor of their own calculations of creditworthiness. San Francisco lender Social Finance recently chose to stop using FICO scores, becoming one of the most influential lenders to do so. Others that have taken similar steps include Affirm, Avant and Earnest. Many of these companies aim to take advantage of a wider base of customers, including millennials and the underbanked, who would not be treated in the same way based on their FICO scores. Fair Isaac Corp., which produces FICO scores, meanwhile must defend its approach as time-tested. Fair Isaac need not worry though – FICO scores still are used in nine out of ten credit decisions.
HSBC might just stay put according to one of its investors. The bank has explored plans to move its headquarters from the UK – and a decision on this front could come any day now. But Martin Gilbert, chief executive of HSBC's fifth largest investor Aberdeen Asset Management, said in an interview the bank may find its aspirations of moving its headquarters a bit too lofty. He says, "The logistics of moving their headquarters out of London are so vast, I suspect much as they might want to move their headquarters, they will probably on balance stay here." The bank is looking to move due to tax and regulatory concerns, and was supposed to make a decision by the end of 2015 but delayed it so its board could collect more information. In that time, the U.K. has seen the mood shift in banks' favor. And Hong Kong, one likely location of HSBC's new headquarters, has become a riskier proposition due to concerns about the Chinese government. The U.S. also remains a possible option.
New York Times
Being a world-renowned economist doesn't mean you're a great investor. That's the lesson that two scholars learned when poring through the records of famed British economist John Maynard Keynes. His theories have formed much of the foundation of contemporary economic thought – and it's a good thing, perhaps, that his investment strategies weren't included. Keynes invested a lot in stocks and currencies – in 1936 at his peak, he had 250,000 pounds invested (or $23 million by today's figures.) But his returns were less than stellar – from 1920 to 1927 he averaged an 8.9% return, while from 1932 to 1939 that went down to 2.5%. His bets were often timed very poorly – he wasn't wrong so much as he was early – making it impressive that he managed returns at all. Ultimately, though, it shows that being a good investor is more than just being smart – intuition and perseverance are also key.
While Democratic presidential candidate Sen. Bernie Sanders, I-Vt., may not be alone in his calls to reinstate Glass-Steagall, his reasons for doing so don't quite seem to pass snuff. In reviving Glass-Steagall, Sanders aims to take on "shadow banks," which he believes got their funds from big banks through federally insured bank deposits in a manner that would have been banned under that legislation. But that assessment is incorrect, according to experts. They argue commercial banks had the power to do this well before Glass-Steagall was repealed or watered down. Banks could give funds to so-called "shadow banks," but they did have to receive permission from the Fed. So what the repeal of Glass-Steagall really did was change the culture surrounding such choices, making them more rampant. And while the law's repeal may have allowed the formation of megabanks that aggravated the crisis, that one change alone hardly was the impetus for the financial meltdown as many of the activities that preceded it would have been allowed under the law.
Bloomberg: Thanks to cost-cutting, Wall Street may see its best quarter since 2006. Analysts estimate spending on compensation, marketing and real estate will fall to $61.8 billion in the fourth quarter for the country's six largest banks, the lowest level since the fourth quarter of 2008. And these banks' bottom lines are expected to reach a total of $19.9 billion – making for the best fourth quarter since 2006. These results would give credence to the idea that cost-cutting is a winning strategy – which is good considering the steps banks like JPMorgan Chase & Co. have taken to cut expenses in recent months, such as firing employees, ending legal disputes and consolidating back-office functions.