Will the fintech bubble burst?; banks using customer data for retail offers

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Down days for Deutsche

The U.S. Department of Justice has “stepped up its investigation into Deutsche Bank’s role in the 200 billion euro ($220 billion) Danske Bank money laundering scandal,” Reuters reports. According to one source, “the DoJ’s new line of inquiry is whether Deutsche helped move tainted money from Danske, Denmark’s largest lender, into the United States. If proven, that could lead to steep financial penalties.”

Separately, “Deutsche’s top internal dealmaker has quit to join a hedge fund, underlining the challenge Germany’s biggest bank faces in keeping senior executives during the most radical restructuring in its 149-year history,” the Financial Times reports. “James Ruane, who has overseen Deutsche Bank’s own internal merger and acquisition activity — including the transfer in September of its prime brokerage business to BNP Paribas — is joining hedge fund Bayview International as head of European special situations. The exit of Mr. Ruane, who was part of chief executive Christian Sewing’s inner circle that led the aborted takeover talks with Commerzbank earlier this year, comes a week before the bank holds a capital markets day at which it will hope to convince investors that a reshaping of the bank to focus on its domestic market, as well as Europe, remains on track.”

Wall Street Journal

No cash

Spurred by young adults and teens, more and more Americans of all ages now “prefer the convenience of a digital wallet to physical cash — even if it means waiting a while to receive payment. Through March of this year, consumers used cash in just 37% of transactions under $20, compared with 46% in 2015.”

Not guilty

A Lebanese shipbuilding executive who was charged by U.S. prosecutors with fraud and money-laundering related to $2 billion of debt deals in Mozambique — for which three Credit Suisse bankers had earlier pleaded guilty — was found not guilty by a federal jury in Brooklyn Monday. The verdict in favor of Jean Boustani, a salesman for shipbuilder Privinvest Group, “could hinder the Justice Department’s efforts to police alleged corruption in emerging-markets finance. It also delivered a victory for Privinvest and its owner, Lebanese businessman Iskandar Safa.” The three bankers had pleaded guilty to some charges and cooperated with the Justice Department in the case.

Financial Times

Almost there...

Monzo, the U.K.-based digital bank that recently expanded into the U.S., has hired TS Anil, Visa’s global head of payment products and platforms, to head its business in there. Tom Blomfield, Monzo’s CEO, said Anil’s appointment marked “one of the last steps required before we can formally file for a banking charter.”

Unprepared?

“People in the U.S. are rightly worried that we are going to see another spike in the repo rate — that is the rate that U.S. banks pay to borrow from one another, with collateral, overnight — as the year draws to a close,” the paper reports. “It suggests the Fed is vastly underestimating the level of liquidity market participants need in order to keep on lending to one another.”

Big cuts

UniCredit, Italy’s largest bank, plans to cut 8,000 jobs and close 500 branches “in an effort to save €1 billion of costs in Western Europe ... as part of a four-year strategic plan unveiled by chief executive Jean Pierre Mustier on Tuesday.” The bank is also “seeking regulatory approval for a share buyback that will be seen as a litmus test for the wider European banking sector.”

Slowed growth

The fintech bubble may be about to burst — or it may have already, according to the paper. “After a huge increase in the number of fintech start-ups founded between 2004 and 2015, there has since been a rapid decline: from 390 in 2015 to just 71 in 2018. The data set for 2019 is not yet complete, but the evidence so far points to a continuation of that steep drop-off in numbers,” to just 12 so far this year, according to The Disruption House, a benchmarking and data analytics firm.

Yet "several ... fintechs have begun offering financial services to small businesses over the past year," American Banker reports. "They say they offer basic banking that is more convenient and less expensive than what traditional banks provide."

Warning

Moody’s cut its outlook on the U.K. banking system to negative from stable, citing Brexit uncertainty, a weak economy and low interest rates that squeeze profit margins. “The U.K.’s economy is weakening, making it more susceptible to shocks, and prolonged uncertainty over Brexit has reduced the country’s growth prospects,” said Laurie Mayers, associate managing director at Moody’s.

Elsewhere

Joining the team

Wells Fargo has hired Scott Powell, CEO of Santander Holdings USA as well as its consumer lending unit, as chief operating officer. Powell is a former lieutenant of Wells CEO Charles Scharf, with whom he worked previously at Bank One and then JPMorgan Chase.

Powell, who starts next week, “will focus on Wells Fargo’s relationships with regulators, which have been strained since the bank became tangled in a wide-ranging sales practices scandal in 2016,” Reuters reports.

“The San Francisco-based bank is currently operating under more than a dozen regulatory consent orders, including an unprecedented growth restriction on its balance sheet from the Federal Reserve until the bank proves it has fixed its risk controls," the news service reports. "Additionally, Wells Fargo faces federal probes by the Department of Justice, the Securities and Exchange Commission and the Department of Labor. During his tenure at Santander, Powell was credited with turning around the bank’s financials and fixing regulatory issues, experience he said will help him in his new role.”

“The hiring of Scott Powell shows that CEO Charles Scharf is turning to outsiders with whom he has previously worked as he seeks to resolve the San Francisco bank’s sprawling regulatory problems,” American Banker reports.

Individualization

Wells Fargo, JPMorgan Chase, Bank of America, PNC, SunTrust and “a slew of smaller banks have begun using the 'gold mine of information' on customer spending habits they possess to customize retail offers for individual consumers,” Fox News reports. “While banks say they’re moving cautiously and being mindful of privacy concerns, it’s not clear that consumers are fully aware of what their banks are up to.”

Quotable

“I wouldn’t count on any quick wins. This is tough stuff, but it’s all very doable over time.” — New Wells Fargo COO Scott Powell, who is joining the bank to help fix its myriad regulatory issues

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Fintech AML Digital banking Career advancement Layoffs Customer data Deutsche Bank Wealth Management Wells Fargo
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