Why small banks can’t keep up; Vanguard steps back

Wall Street Journal

Flexing their muscle
Large banks are winning the battle for new customers against smaller rural banks, which are “struggling to fund the ballooning tab” for technology that people demand. “Consumers expect digital services including depositing checks and sending money to friends, which means they don’t necessarily need a local branch nearby. This increasingly means people are choosing a big bank over a small one,” even when the big banks leave town. “The 4,600 U.S. banks with $1 billion or less in assets today hold 6.6% of all bank assets combined, compared to 31.5% three decades ago. Over the past 30 years, the number of such banks has declined by more than 11,000, largely through mergers. More than one-third of rural counties now have no locally owned bank.”

Meanwhile, automated financial advisers like Weatherfront and Betterment “are expanding into the cash-management market with high rates, the latest move by these so-called robo advisers to capture clients from traditional banks and brokerages.” Both firms offer annual deposit rates of about 2.23%, well above the national average of 0.10% banks are paying. “These better deals for savers could hit higher-cost banks and brokerages: Cash deposits have long generated a significant chunk of revenue, and they became even more lucrative after the Federal Reserve raised rates last year.”

Can’t compete
Vanguard Group is shutting down its “banklike” VanguardAdvantage cash management service for large customers, “an acknowledgment the offering couldn’t rival what banks provide.” The service, which was launched in 2002, “linked banklike features with Vanguard’s brokerage accounts for bigger clients. Those customers could write checks, pay bills, and use a debit card to draw cash from an account with Vanguard in addition to tapping other services.”

Mike Mergen/Bloomberg News

Who's to blame?
U.S. District Judge Charles Breyer is expected to rule Monday on a “request to throw out a case against a senior Barclays trader [that] will turn on an issue that has prompted previous cases to run into trouble: whether individuals can be held to account for activity consistent with the bank’s practices.” While several large banks “pleaded guilty in related 2015 cases to crimes including foreign-currency manipulation and rigging benchmark interest rates … prosecutors have been far less successful at convicting the people who engaged in this behavior.”

Deeper dive
Discover plans to use artificial intelligence to vet personal loan applicants to try to “get its rising losses under control. … The company also is trying to root out swindlers applying for credit with fake identities and made-up or stolen information.”

Financial Times

Just a number
“A crucial factor” enabling last month’s $66 billion merger between BB&T and SunTrust to get done “was that one of the chief executives, Kelly King of BB&T, is old. At 70, with a decade at the helm of BB&T, Mr. King will run the combined bank until 2021, and then step aside for the younger SunTrust boss William Rogers, 60. Having one chief executive who is already of an age to ride off into the sunset helps solve the problem of convincing another to depart the C-suite.”

Metro fallout
The Basel Committee on Banking Supervision “has called for external checks on the riskiness of banks’ loans as the fallout continues from an accounting failure at the UK’s Metro Bank.” Bill Coen, the committee’s secretary-general, “said auditors should be given responsibility for checking banks’ calculations to minimize the scope for errors or cheating, in a sign that the crisis at the nine-year-old bank is reverberating around the industry.”

Gaining traction
The paper looks into why a Deutsche Bank-Commerzbank merger, “rumored for a decade, now has political backing” in Germany. “Policymakers and corporate bosses see a stable national banking champion as the backbone of their export-led industrial policy, vital if the country is to weather the next downturn that many economists warn looms large.”

New York Times

Influence peddler
The paper has a long expose on Jordan Goodman, the former Money magazine columnist and “self-styled financial guru” who used his reputation as “America’s Money Answers Man” to not only dispense financial advice but to steer unwitting investors into questionable ventures, including one in “which Mr. Goodman had described with glowing confidence,” but which “the Securities and Exchange Commission [said] was a billion-dollar Ponzi scheme with thousands of victims.”

“A close examination of Mr. Goodman’s decades of work as a money guru reveals the many angles he worked. He made his living not just with books and speaking gigs, but as a paid ambassador for companies offering financial services.”

Quotable

“There is a Greek chorus telling prosecutors to put people in jail. But cases are harder to make against individuals.” — Former federal prosecutor Aitan Goelman, about the prospect for sending individual bankers to prison for their misdeeds.