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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.
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.
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.”
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.
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
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!
An updated spreadsheet of the greatest fund managers is available to download at the link at the end of this article.
I have received many emails from readers asking how to use the spreadsheet listing the greatest fund managers that I make available for download. Many readers start by sorting the spreadsheet by year-to-date returns. Let me explain why that does not get you to funds I would recommend as top choices.
The top 3 funds on the spreadsheet sorted by year-to-date (YTD) return are Kinetics Internet (WWWFX) up 38.47% YTD, Virtus Zevenbergen Innovative (SAGAX) up 36.58% YTD, and Artisan Mid Cap (ARTMX) up 33.95% YTD. Here’s how I look at each of them.
Murray Stahl has been at the helm for 18 years. For the last 10 years, he has beaten his category benchmark by 0.26% a year — including the past 6 months of stellar returns. If you invested $10,000 in this fund 10 years ago, you would have beaten the category benchmark by $263.06. Beating his benchmark for 10 years is an achievement for Stahl, but the outperformance is not enough to make a difference for investors.
Virtus Zevenbergen Innovative
Brooke de Boutray has managed this fund for 11 years. Over the last 10, she beat her category benchmark by 3.21% a year which translates to an additional $3,715.69 return on a $10,000 investment over 10 years — that’s more like it. The only problem is the fund has a hefty 5.75% load. Although the manager has proven her skill, I would prefer not to pay a load unless there was no other alternative.
Artisan Mid Cap Investor
James D. Hamel has managed the fund for 10 years, outperforming his benchmark by 1.19% a year which means Hamel added $1,255.79 over 10 years on a $10,000 investment on top of the benchmark return.
My Take: The best evidence of a manager’s skill is the margin of outperformance over a market cycle (10 years minimum). The bigger the gap between the manager’s return and the benchmark the more confident you can be of a manager’s skill.
Stahl’s outperformance of 0.26% a year, is better than about 98% of mutual fund managers, but it is not large enough to be compelling. I leave him on the spreadsheet because he may be the best one available in many 401k plans, but he would not be among my top choices.
Even when a great manager outperforms by a large margin (as Boutray did) the fund company can make it a bad choice for investors by loading up the fees. I leave Boutray’s fund on the spreadsheet, because a lot of 401k plans only offer load funds. In that case, Boutray’s fund could be your best choice, even if it would not be among my top choices.
Hamel’s Artisan Mid Cap Fund is the best of these three, but there may be others what have performed slightly less well year-to-date but with much bigger margins over their benchmark for the past 10 years. There is a trade-off to make between recent returns and long-term returns. I will do a deep dive on this next time.
Click here to download the most recent spreadsheet listing all the funds that passed muster.
To see previous articles in this series, click here.
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I am the CEO and founder of Marketocracy, Inc.,and portfolio manager at Marketocracy Capital Management, LLC. My firm maintains a database of the world’s greatest
Source: The Greatest Fund Managers Midyear Review
Leon Saunders Calvert, Global Head of M&A and Capital Raising at Thomson Reuters explores to what an extent Fintech is now changing the Investment Banking industry.
New technologies, like machine learning/artificial intelligence, predictive behavioral analytics and data-driven marketing, will take the guesswork and habit out of financial decisions. “Learning” apps will not only learn the habits of users, often hidden to themselves, but will engage users in learning games to make their automatic, unconscious spending and saving decisions better.
The Fintech Landscape
Fintech startups received $17.4 billion in funding in 2016 and were on pace to surpass that sum as of late 2017, according to CB Insights, which counted 26 fintech unicorns globally valued at $83.8 billion. North American produces most of the fintech startups, with Asia following. Some of the most active areas of fintech innovation include or revolve around the following:
- Cryptocurrency and digital cash
- Blockchain technology, including Etherium, a distributed ledger technology (DLT) that maintain records on a network of computers, but has no central ledger.
- Smart contracts, which utilize computer programs (often utilizing the blockchain) to automatically execute contracts between buyers and sellers.
- Open banking, a concept that leans on the blockchain and posits that third-parties should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool Mint.
- Insurtech, which seeks to use technology to simplify and streamline the insurance industry.
- Regtech, which seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know Your Customer protocols which fight fraud.
- Robo-advisors, such as Betterment, utilize algorithms to automate investment advice to lower its cost and increase accessibility.
- Unbanked/underbanked, services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies.
- Cybersecurity, given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and fintech are interlocked.
Who uses fintech? There are four broad categories: 1) B2B for banks and 2) their business clients; and 3) B2C for small businesses and 4) consumers. Trends toward mobile banking, increased information, data and more accurate analytics and decentralization of access will create opportunities for all four groups to interact in heretofore unprecedented ways.
Customers now expect seamless digital onboarding, rapid loan approvals, and free person-to-person payments – all innovations that FinTechs made popular. And while they may not dominate the industry today, FinTechs have succeeded as both standalone businesses and vital links in the financial services value chain,” a recent industry report by Deloitte and the World Economic Forum (WEB) stated.
According to Deloitte and the WEB, disruptive forces that have reshaped the FinTech industry include, but are certainly not limited to:
- The growth of online shopping, which is expanding quickly at the expense of in-person shopping, leading to the dominance of online, cashless solutions for transactions.
- A shifting balance of power that swings from banks and other financial services to those who own the customer experience. Banks are eliminating in-person services and looking to FinTech and large technology companies for other ways to engage customers.
- New trading platforms that are collecting data to create an aggregated market view and using analytics to uncover trends.
- Insurance products, which are becoming more tailored to customers who, in turn, are demanding coverage for specific locations, uses and timeframes. That’s driving insurers to collect and analyze additional data about their clients.
- Artificial intelligence, which now plays a role in differentiating financial services products as it replaces complex human activities.
- Transaction process improvement and middleware, both of which remain expensive. This is pushing traditional financial services firms to consider partnerships with marketplace lenders for FinTech solutions that don’t require a full infrastructure overhaul
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