Shutdown boosts payday lenders; CEO pay growth far outpaces rank-and-file
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UBS failed to meet analysts’ expectations for the fourth quarter, reporting net earnings of $696 million versus forecasts of $729 million. The bank’s stock dropped sharply in Europe on the news. The bank was hit by a $13 billion drop in client money, including nearly $8 billion from its “market-leading” wealth management unit, “as ultra-wealthy clients pulled money from plunging stock markets,” according to the Financial Times. Wall Street Journal, Financial Times
Wall Street Journal
Look at the bright side
Despite the “horror show” at their trading units, Wall Street banks reported strong gains in fourth quarter lending and credit quality, lifting their stocks by an average 7.7% last week, the biggest one-week increase since the 2016 presidential election. “Fourth-quarter results helped assuage some worries. The banks, for example, showed scant signs of being stressed by lending to consumers or companies. The latter is a particular worry for some analysts, given that corporate debt represents as big a share of gross domestic product as at any time since the 2008 financial crisis.”
Good times in bad times
“The longest government shutdown in U.S. history” has been a boon to pawnshop chains and payday lenders, “some of the most contentious companies on Wall Street.” The stock of World Acceptance, a South Carolina-based short-term lender, is up 22% since the shutdown began a month ago, while EZ Corp, a Texas-based pawnshop operator, is up 20%. “Many people . . . are reaching into savings and looking for short-term liquidity if they need to pay the mortgage or something else,” said Michael Underhill, chief investment officer at Capital Innovations. “Alternative lending platforms have likely stepped into the void.”
Patrick Jenkins, the FT’s financial editor, says “Santander’s volte-face” last week on paying over €50 million to get UBS banker Andrea Orcel to join the Spanish bank as its CEO shows that the winds of executive pay may have changed, at least in Europe. “These are different times,” he writes. “Santander’s decision not to hire Mr. Orcel was in part motivated by today’s political context. Paying up to hire him would have inflamed anti-business sentiment in a country where the Socialist government is supported by the Podemos populist party. Well-structured pay is clearly in shareholders’ interests. But if investors fail to curb high payouts, populism will. And as Mr. Orcel’s story illustrates, that can be messy.”
Don’t tell that to the CEOs of the biggest U.S. banks. “Average pay at America’s top six banks is rising at a significantly lower rate than the increase enjoyed by some of their chief executives, as the spoils of Wall Street’s record profitability are shared unevenly between the industry’s elite and their underlings. Analysis by the Financial Times shows that pay per employee at JPMorgan Chase, Bank of America, Goldman Sachs, Wells Fargo, Citigroup and Morgan Stanley rose by just over 3% cent last year.”
Barclays “is the target of the most audacious assault by an activist investor on a U.K. company in recent history,” as Edward Bramson, “arguably one of the most successful forces in British activist investing,” campaigns for the investment bank to be cut back, “claiming Barclays would do better to focus on its U.K. retail operation and its credit card business. The battle has implications not just for Barclays and the City of London, but also for Europe’s financial services industry, given that it comes at a time of retrenchment among most of the continent’s global investment banks.”
Meanwhile, Barclays and Santander have taken stakes in British fintech company MarketInvoice, “a sign of established lenders’ growing willingness to team up with technology-driven challengers. Big banks and fintechs have become increasingly keen to work together despite sometimes competing for the same customers. Smaller firms such as MarketInvoice benefit from access to banks’ long-established customer bases, while banks can exploit smaller players’ specialist knowledge or ability to develop products more quickly.”
Now we can do business
Now that domestic payments companies such as UnionPay, Alipay and WeChat Pay “have gobbled up the market for electronic payments and established strong ties with consumers,” the Chinese government may now finally be willing to end its “blockade” of U.S. credit card processors. Of course, that means there’s probably not much business left for them. “We are not expecting China to be a meaningful contributor to their growth, ever,” said Morgan Stanley analyst James Faucette.