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Banks Around The World Face Significant Profits Pressure For The Foreseeable Future

Numerous indicators in the U.S. and around the world are signaling a slowing economy at best and a near-term recession at worst.  The slowing global economy, along with low interest rates, ongoing trade tensions, and intensifying Brexit uncertainty will weigh on banks’ profitability for the foreseeable future.  In the US, whatever benefits banks derived from Trump’s tax reform, if any, are long gone.

Global Macroeconomic Outlook for the G-20

Moody’s Global Macroeconomic Outlook, August 2019

Last week’s announcement from Coalition that American and European investment banks’ capital markets and advisory’s revenues hit a thirteen-year low is likely to be the beginning of more challenges to come.  Even before that announcement, Moody’s Investor Services had changed its positive outlook on global investment banks to stable precisely due to slower economic growth and lower interest rates.

Today In: Money

Drivers of Moody’s Stable Outlook for Global Investment Banks

Moody’s Investors Services

As a recession comes closer, bank risk managers, investors, regulators, and rating agencies will be monitoring banks’ loan impairments carefully.  According to the Fitch Ratings’ Large European Banks Quarterly Credit Tracker – 2Q19, released last week, “The economic slow down in Europe has not resulted in material new impaired loans yet, but the substantially weakened economic outlook has increased the likelihood of an at  least modest increase in impaired loans.”

Impaired Loans/Gross Loans

Fitch Ratings, Large European Banks Quarterly Credit Tracker

Banks’ high holdings of leveraged loans and below investment grade bonds and securitizations, especially those that are less liquid and harder to value, will also weigh on their earnings as the global economy slowdown intensifies.  Fitch Ratings’ recent ‘U.S. Leveraged Loan Default Insight’ shows that its “Top Loans and Tier 2 Loans of Concern combined total jumped to $94.1 billion from $74.5 billion in July. The Top Loans of Concern amount ($40.9 billion) is the largest since March 2017, with six names added to the list and nearly all bid below 70 in the secondary market.”  Unfortunately, underwriting continues to deteriorate. The Federal Reserve Senior Loan Officer Survey showed a modest loosening of lending standards on corporate loans for the second consecutive quarter.

Leveraged Loans of Concern Amount Outstanding

Fitch U.S. Leveraged Loan Default Index.

A slowing economy and low interest rate environment are outside of bank managers’ control. Yet, cost efficiency, is something that banks can influence; it needs to improve for banks to be more profitable.  European banks’ median/cost income ratio, for example, is 66%. “The sector’s structural cost inefficiency will eventually have to be addressed given the persistently weak rate and revenue outlook. Improving cost efficiency faster and developing fee-generating businesses are crucial to sustain profitability in 2H19 and beyond.”

Cost Efficiency

Fitch Ratings, Large European Banks Quarterly Credit Tracker

Global investment banks will also have to be very attentive to what changes need to be made to their business models. While there will be demand for their advisory and distribution services, the demand will slow down in what is likely an upcoming recession.

Capital Markets Revenue Relative to Total Revenue, 2018

Source: Moody’s Investors

Moreover, as banks continue to lay-off front office professionals, some top latent to effect deals well will be lost.  Volatility from Trump’s multiple front trade wars and Brexit will put a lot of pressure on banks with capital market activities.

Aggregate capital markets revenue first-half 2009-19 (USD billions)

Moody’s Investor Services

Banks in emerging markets are also under profit pressure.  Many of the banks in Latin America already have a negative outlook by ratings agencies, particularly due to a slowdown in Mexico and recessionary pressures in Brazil. Asian banks are particularly sensitive to US-Chinese trade tensions.

Emerging Markets: Median GDP Growth by Region

Fitch Ratings

More than ever, to increase profitability, bank executives will need to find ways to diversify their revenue streams in all parts of their banks, commercial, investment bank, asset management as well as in custody and clearing services.  Banks need to be profitable to be liquid and to be well capitalized to sustain unexpected losses. What worries me is that a slowing global economy, coupled with increasing deregulation in the US, such as the recent gutting of the Volcker Rule, will embolden banks to chase yield even more and take excessive risks that could imperil depositors and taxpayers.  More than ever, investors, bank regulators, and rating agencies should remain vigilant so as to spare ordinary citizens the pain of when banks run into trouble.

 

 

Source: Banks Around The World Face Significant Profits Pressure For The Foreseeable Future

We Ranked the Top 10 Richest Banks in the World Right Now!

• Read the full article here: http://www.alux.com/richest-banks-in-…

When you’re thinking about money and wealth is hard not to include in that equation Banks. Someone said: Money makes the world go round” and banks, well, that’s where money likes to hang out. Every Aluxer we’ve met has close relations to at least one bank which makes it possible for us to enjoy life to the fullest. #2 *** HSBC Holdings is previously known as The Hong Kong and Shanghai Banking Corporation which was founded in 1865 in Hong Kong. However, in 1991-1992, after acquiring Midland Bank The Hong Kong and Shanghai Banking Corporation moved it’s headquarters to London because it was much better from a financial and strategic point of view.

This is the moment when the bank kind of re-branded itself and became HSBC Holdings the bank that you know today. With that said, we’d like you to enjoy our latest video on: the top ten richest banks in the world. Here we’re answering questions like; • Which is the richest bank in the world?! • How much money do the top banks have?! • Is Bank of America the richest bank in the world?! • Who owns the richest bank in the world? • How much money does the richest bank have?! Say Hello on: https://www.instagram.com/aluxcom/ https://twitter.com/aluxcom https://www.facebook.com/EALUXE – SUBSCRIBE to ALUX: https://goo.gl/KPRQT8 WATCH MORE VIDEOS ON ALUX.COM! Most Expensive Things: https://goo.gl/09XcYJ Luxury Cars: https://goo.gl/eOUgfS Becoming a Billionaire: https://goo.gl/rRLgJI World’s Richest: https://goo.gl/m6emkX Inspiring People: https://goo.gl/KxqTdL Travel the World: https://goo.gl/g5BGmm Dark Luxury: https://goo.gl/20ZsSt Celebrity Videos: https://goo.gl/0cs6sx Businesses & Brands: https://goo.gl/otHsTB — Alux.com is the largest community of luxury & fine living enthusiasts in the world. We are the #1 online resource for ranking the most expensive things in the world and frequently refferenced in publications such as Forbes, USAToday, Wikipedia and many more, as the GO-TO destination for luxury content! Our website: https://www.alux.com is the largest social network for people who are passionate about LUXURY! Join today!

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The Future Of Banking: Fintech Or Techfin – Jim Marous

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The banking industry is experiencing disruption at an increasing pace. Over the past few years, traditional financial institutions and non-traditional fintech firms have begun to understand that collaboration may be the best path to long-term growth. At the same time, big tech firms are offering financial services, creating techfin solutions.

The rationale for collaboration is the ability to bring strengths of both banks and fintech firms together to create an stronger entity than either unit could bring on their own. For most fintech organizations, the primary advantages are an innovation mindset, agility (speed to adjust), consumer-centric perspective, and an infrastructure built for digital. These are advantages that most legacy financial institutions don’t possess.

Alternatively, most banking institutions have scale, a stronger brand recognition and established trust. They also have adequate capital, knowledge of regulatory compliance and an established distribution network.

According to the World Fintech Report 2018 from Capgemini and LinkedIn, in collaboration with Efma, “Most successful fintech firms have focused on narrow functions or segments with high friction levels or those underserved by traditional financial institutions, but have struggled to profitably scale on their own. Traditional financial institutions have a vast customer base and deep pockets, but with legacy systems holding them back.”

The challenge will be the ability to establish an environment where collaboration can flourish as opposed to stifling the beneficiary attributes of either partner.

Fintech vs. Techfin

The difference between fintech and techfin is based on the origin of the underlying organization. Fintech usually references an organization where financial services are delivered through a better experience using digital technologies to reduce costs, increase revenue and remove friction.

A basic example of a fintech offering is the mobile banking services that most traditional banks offer. More commonly, fintech refers to non-traditional financial offerings such as PayPal, Zelle and Venmo in the U.S. and digital-only Starling Bank, Monzo and Revolut in the U.K.

Alternatively, techfin usually references a technology firm that finds a better way to deliver financial products as part of a broader offering of services. Examples of techfin companies include Google, Amazon, Facebook and Apple (GAFA) in the U.S. and Baidu, Alibaba & Tencent (BAT) in China.

A couple years ago, Jack Ma, technology visionary and co-founder and executive chairman of Alibaba Group, described the difference between Fintech and Techfin.

There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is internet finance, which is purely led by outsiders.Jack Ma

In both instances, success of these organizations in finance will be based on the ability for the institution to collect and analyze massive data sets, learn from the insights to improve personalization and digital engagement in real-time, and expand offerings in response to consumer needs.

A New Competitive Landscape

Even with the best collaboration, the ability for legacy financial institutions to compete in the future banking ecosystem will be challenged by the techfin powerhouses. Built on digital platforms, these huge technology organizations are efficient and have already found ways to reduce operational costs and monetize their business models.

According to Bain, “Many of the tech giants possess the ingredients of success: digital prowess, large customer bases, organizations well versed in improving the customer experience, and ample leeway to extend their corporate brands into banking.” More concerning may be that some of these firms are generating a level of trust previously reserved only for traditional banks and credit unions.

As a result, an increasing percentage of consumers are willing to use financial products offered from these non-traditional firms – especially where the experience is superior to that offered by legacy organizations. A potential to shift revenues from other businesses (such as retail) to enhance banking offerings can completely change the competitive equilibrium.

It is expected that demand for products and services from fintech firms and large tech companies will only increase as more consumers become familiar with new digital offerings. This is especially true for younger consumers, who have grown up with digital devices.

More and more, people will get annoyed when they’re forced by bank policies and processes to use non-digital channels for everyday banking business. Traditional banking organizations cannot rely on providing checking accounts and loans only. Competitors are already eating away at significant parts of the banking value chain with the potential of limiting banks to becoming nothing more than utilities.

The future of the banking industry will depend on its ability to leverage the power of customer insight, advanced analytics and digital technology to provide services that help today’s tech-savvy customers manage their finances and better manage their daily lives.

As financial and technology organizations embrace a broader view of banking, offering both banking and non-banking services, the ultimate winner will be the consumer regardless of which provider they select.

 

 

 

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