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Google Is Planning to Offer Checking Accounts in Partnership With Banks

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Google is increasingly involved in more areas of its users’ lives. It’s where we turn every day for answers to pretty much everything from simple questions to complicated research. It’s where we get our email, store our photos, manage our calendars, and manage our files. It’s already the most dominant mobile operating system, and it now makes smart home devices. With its purchase of Fitbit, it’s clear Google also wants to dominate wearable technology.

Or, said another way, Google is everywhere.

Now, according to The Wall Street Journal, Google is working on a new project called Cache that involves offering checking accounts. Yes, Google wants to be your bank.

Well, more specifically, Google plans to partner with banks to offer its customers access to banking products like checking accounts. In this case, accounts would be offered by Citigroup, as well as a credit union at Stanford University, and those financial institutions would provide all of the financial services and account management.

Google would provide the convenience, along with loyalty rewards. For example, users would access their accounts through Google Pay, much like Apple’s users access its branded credit card through Apple Pay.

 

Speaking of which, with recent moves by other tech companies into the personal finance space, it was probably inevitable that Google would follow suit. Apple recently introduced its own credit card with Goldman Sachs, and Facebook has announced its plans to launch a digital currency called Libra. It might be worth mentioning that both of those have come under intense scrutiny, with New York regulators launching an investigation into Apple Card for discriminating on the basis of gender when extending credit limits.

I actually think this is less a deviation for Google than it might seem. In fact, as TechCrunch pointed out, by providing users with checking accounts, “Google obviously stands to gain a lot of valuable information and insight on customer behavior with access to their checking account, which for many is a good picture of overall day-to-day financial life.”

It’s helpful to remember that for all the useful services Google provides, the company is, at its core, an advertising platform. That is the underlying business model that makes it huge amounts of money, and it’s the driving force behind every product or service it offers.

And while Google hasn’t suffered the same level of scandal as the next-largest advertising platform, Facebook, the strategy is the same–monetize people’s personal information.

Of course, that lack of scandal is reflected in the fact that consumers say they are more likely to trust Google with their financial information than some of its competitors. Only Amazon was rated higher in a McKinsey & Company survey included in the Journal’s report. Fifty-eight percent of consumers said they would trust Google for financial products.

The Journal also reports that Google won’t sell financial information to advertisers, which is great, but that doesn’t mean it won’t use that information to target specific advertising at customers based on their income or spending habits — which is really the only reason Google would get into financial products in the first place.

It’s also the only thing you need to know when considering whether this is a good idea. I’m not sure any amount of “loyalty program” or convenience can make up for the cost of having even more of your personal information monetized.

Jason AtenWriter and business coach

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Google is planning to launch consumer checking accounts next year in partnership with Citigroup and Stanford University, The Wall Street Journal (WSJ) reported on Wednesday (Nov. 13). Code-named Cache, the accounts will be handled by Citigroup and a credit union at Stanford University. The branding will reflect the financial institutions and not Google. “Our approach is going to be to partner deeply with banks and the financial system,” Google VP of Product Management Caesar Sengupta told WSJ. “It may be the slightly longer path, but it’s more sustainable.”

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!

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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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This A.I. Bot Writes Such Convincing Ads, Chase Just ‘Hired’ It to Write Marketing Copy

Here are two headlines. One was written by a human. One was written by a robot. Can you guess which?

  • Access cash from the equity in your home. Take a look.

  • It’s true–You can unlock cash from the equity in your home. Click to apply.

Both lines of marketing copy were used to pitch home equity lines of credit to JPMorgan Chase customers. The second garnered nearly twice as many applications, according to the Wall Street Journal. It was generated by Persado’s artificial intelligence tool.

This is why Chase just signed a five-year deal with Persado Inc., a software company that uses artificial intelligence to tweak marketing language for its clients. After a trial period with the company, Chase has found Persado’s bot-generated copy incredibly effective. “Chase saw as high as a 450 percent lift in click-through rates on ads,” Persado said in a statement.

That email might have been written by a bot.

Chase says it will use Persado’s tool to rewrite language for email promotions, online ads, and potentially snail mail promotions. It’s also looking into using the tool for internal communications and customer service communications.

When asked if this might lead to downsizing, a Chase spokesperson told AdAge: “Our relationship with Persado hasn’t had an impact on our structure.”

Persado’s tool starts with human-written copy and analyzes it for six elements (narrative, emotion, descriptions, calls-to-action, formatting, and word positioning). It then creates thousands of combinations by making tweaks to those elements.

Kristin Lemkau, chief marketing officer at JPMorgan Chase, is fully on board with Persado. Chase began experimenting with its software three years ago. Sometimes the tool would recommend a wordier headline, which goes against marketing 101. But that longer headline garnered more clicks.

“They made a couple of changes that made sense and I was like, ‘Why were we so dumb that we didn’t figure that out?'” she told the Journal.

By: Betsy Mikel Owner, Aveck @BetsyM

Source: This A.I. Bot Writes Such Convincing Ads, Chase Just ‘Hired’ It to Write Marketing Copy

Deutsche Bank Faces A Smaller, Poorer Future

The London offices of Deutsche Bank. On July 24, 2019, Deutsche Bank reported a headline loss of €3.1bn which it said arose from the radical restructuring plan it commenced this month, in which its operations in the U.K. and U.S. are being drastically cut. (Photo by Alberto Pezzali/NurPhoto via Getty Images)

Deutsche Bank has issued its results for the second quarter of 2019. They make grim reading. The bank reported a headline loss of €3.1bn ($3.44bn), which it said was due to “charges relating to strategic transformation” of €3.4bn ($3.78bn). But both net income of £231m ($256.67m) and underlying profits of €441m ($490m) were significantly down on the same quarter in 2018.

The restructuring announced earlier this month has yet to impact fully. The “capital release unit” into which the bank plans to put €74bn ($82.22bn) of poorly-performing and non-strategic assets and business lines, including its entire equities trading division, is not yet up and running, and although headcount is about 4,500 lower than it was a year ago, the latest round of sackings doesn’t yet show up in the redundancy costs. Restructuring costs themselves therefore only contribute €50m ($55.56m) to the headline loss.

A further €350m ($388.89m) comes from junking software and service contracts that will no longer be needed because of the restructuring. But by far the largest part of the headline loss arises from impairment of goodwill to the tune of €1bn ($1.11bn) and a €2bn ($2.22bn) reduction in the value of the bank’s deferred tax asset.

This may sound like accounting gobbledegook, but it sends a very important message. Deutsche Bank’s management has admitted the bank will never return to the profitability of the past. When the restructuring is complete, it will be a much smaller, poorer bank.

First, the writedown of the deferred tax asset (DTA). A DTA arises when a firm pays taxes in advance and then suffers losses that wipe out that tax liability, resulting in an overpayment. Rather than claiming back the money, firms can “carry forward” the overpayment and use it to offset their tax liability in a subsequent reporting period. This “carried forward” amount is shown as an asset on the balance sheet.

However, a firm can only carry forward overpaid tax into subsequent periods if it is reasonably certain that the firm will eventually make enough profits to be liable for that amount of tax; and there is usually a time limit by which the deferred asset must be used. If the firm can’t generate enough profits to use the DTA, it is lost.

This is how Deutsche Bank explains its decision to write down the DTA (my emphasis):

Each quarter, the Group re-evaluates its estimate related to deferred tax assets, including its assumptions about future profitability. In updating the strategic plan in connection with the transformation the Group adjusted the value of deferred tax assets in affected jurisdictions. This resulted in total valuation adjustments of € 2.0 billion in the second quarter of 2019 that primarily relate to the U.S. and the UK.

Deutsche Bank has admitted that the deep cuts to the investment bank will result in profitability being significantly lower for the foreseeable future.

Now to goodwill. Goodwill can be regarded as another type of overpayment. It is the amount by which the purchase price of an asset or business exceeds the fair value of the tangible and intangible assets acquired and any liabilities taken on. Firms overpay for acquisitions when they expect them to deliver higher returns in future. But if they disappoint, then eventually the value of the “goodwill” must be reduced.

In two divisions – corporate finance, and the wealth management unit within its private & commercial banking division – Deutsche Bank has written off its entire goodwill, amounting to €491m  ($545.56m) in corporate finance and €545m ($605.56m) in wealth management. Importantly, the notes to the accounts show that the write-off is not a restructuring cost; these are business lines that have been under-performing for quite some time. The bank blames “adverse industry trends” and “worsening macroeconomic assumptions, including interest rate curves.” This is code for “we thought interest rates would be much higher by now.” Revenues have persistently disappointed because of very low interest rates, and now that the European Central Bank has indicated that rates will stay low for the foreseeable future – and may even be cut further – there is no real prospect of recovery. These business lines are simply never going to make enough money to cover their acquisition cost. Cue transfer to the “capital release unit” as soon as it is up and running.

The good news is that the €3bn ($3.33bn) writedown of DTA and goodwill didn’t affect the bank’s capital. The all-important CET1 capital ratio stayed firm at 13.4%. But looking ahead, there are clearly more restructuring costs to come. The bank says it currently has provisions for about €1bn ($1.11bn). It expects to use all of this, and it may need more. And Deutsche Bank also faces further litigation charges which it admits could be considerable.

But the biggest problem is Deutsche Bank’s desperate lack of income. Troubled though it is, the investment bank is still Deutsche Bank’s biggest source of revenue. The planned cuts will slash that to the bone, and there is no evidence that any of the other divisions can step up to replace it. All Deutsche Bank’s divisions, apart from its asset manager DWS, have flat or declining revenues and poor profitability. Unless it can turn this around, the future looks very bleak.

Despite the management’s upbeat presentation, the share price fell on these results. Shareholders were clearly unimpressed with the promise of “jam tomorrow” in the form of dividends and share buybacks from 2022. Perhaps they, like me, were looking at the bank’s promise to turn ROTE of negative 11.2% today into positive 8% by 2022, and thinking, “I don’t believe a word of it.”

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I used to work for banks. Now I write about them, and about finance and economics generally. Although I originally trained as a musician and singer, I worked in banking for 17 years and did an MBA at Cass Business School in London, where I specialized in financial risk management. I’m the author of the Coppola Comment finance & economics blog, which is a regular feature on the Financial Times’s Alphaville blog and has been quoted in The Economist, the Wall Street Journal, The New York Times and The Guardian. I am also a frequent commentator on financial matters for the BBC. And I still sing, and teach. After all, there is more to life than finance.

Source: Deutsche Bank Faces A Smaller, Poorer Future

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