Solomon faces big challenges; Morgan Stanley crushes estimates

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Earnings: Morgan Stanley reported $2.4 billion in earnings on $10.6 billion revenue for the second quarter. Both figures easily beat forecasts. Profit was up 39% from the year earlier period. Wall Street Journal, Financial Times

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Changing of the guard: Goldman Sachs’s naming of President David M. Solomon to succeed Lloyd Blankfein as chairman and CEO “puts a symbolic cap on Goldman’s postcrisis era and will fuel the firm’s continued evolution from a secretive trading powerhouse into a more nimble and entrepreneurial place,” the Wall Street Journal says. Solomon is “a proven business-builder who has spoken forcefully about the need for the firm to be less stuck in its ways. He has already been sketching out an agenda that would push the firm to be more organized, decisive and open. Insiders expect him to impose a corporate discipline that Goldman, which spent decades as a loosely run partnership, has been slow to embrace.” Wall Street Journal, American Banker

David Paul Morris/Bloomberg

The elevation of Solomon, according to the New York Times, “was anticlimactic” and the bank’s strategy probably “won’t change radically under Mr. Solomon.”

But one of those strategies, “featuring more traditional bank activity like lending to consumers, remains unproven. This initiative is still in its infancy and must be fully implemented” by Solomon, the Journal notes. “So far, the strategy is proving successful in its stated aim of growing Goldman’s top line. But these lending programs remain untested by a turn in the credit cycle. This will present a new and unfamiliar challenge to Goldman. It will be up to Mr. Solomon to start preparing for this now and to guide the bank through the inevitable downturn.”

American Banker reports the bank will proceed with its plan to build a mobile phone-based bank for consumers.

“To a degree, it’s like going from serving caviar to cheeseburgers, serving the high end of the financial industry to serving average people,” Mike Mayo, a banking analyst for Wells Fargo Securities, says about Goldman’s consumer lending business. “How will that pan out and how will the new CEO support those initiatives, that is the question.”

Blankfein’s “12-year tenure as Goldman Sachs’s chief executive, the longest run atop the firm in five decades, has included notable peaks but also difficult depths.”

Here’s Blankfein’s farewell memo to the firm’s employees:

Wall Street Journal

Confirmed: By a vote of 66 to 33, the Senate confirmed Randal Quarles, the Federal Reserve’s vice chairman for supervision, to a full 14-year term on the Federal Reserve Board.

Financial Times

Creating a revolution: China’s huge mobile payments system — now bigger than the global totals of both Visa and Mastercard — “has been spearheaded by millennials, who were the early adopters of mobile payments, but it has rapidly spread across generations.” It was also “partly spurred by the inconvenience felt by many of using traditional banks, from having to travel long distances for rural customers to having to queue in branches in the cities.”

“But it was the unique formula offered by China’s tech giants that generated the explosion: by blending social, e-commerce and payment functions into single apps, customers could manage their finances at the same time as managing their social lives.”

Two sides: Revolut, the U.K.’s fastest growing fintech company, notified law enforcement and financial regulators about “a spate of suspected money laundering on its digital payments system.” The company’s action “highlights how seriously the company takes its legal obligations.” But it also “could be seized on by Revolut’s critics, who question whether it can maintain strong enough defenses against financial crime while pursuing its super-charged growth strategy.”

Elsewhere

It’s real: The CFA Institute is adding cryptocurrencies and blockchain to its curriculums next year, “the definitive sign that cryptocurrencies have arrived on Wall Street,” Bloomberg says. “We saw the field advancing more quickly than other fields and we also saw it as more durable,” said Stephen Horan, the institute’s managing director for general education and curriculums. “This is not a passing fad.”

Quotable

“When things are going badly, you can’t leave. And when things are going well, you don’t want to leave. So if you’re going out on your own steam, it’s always going to be at a moment when you don’t want to leave. And by the way, that’s why people sometimes stay too long.” — Lloyd Blankfein in his farewell memo to Goldman Sachs employees.